Chpt. 8 Borrowing Flashcards
What is Borrowing?
Getting money from a person/financial institution and agreeing to pay it back at a later date. The borrower usually has to pay an extra amount to the lender for the use of their money. This extra charge is called interest.
Before borrowing, ppl should consider:
Do i really need the item?
How much will it cost?
Can i afford the repayments?
Explain Hire Purchase
A medium-term source of finance used to purchase an asset. The purchaser pays a deposit followed by an agreed number of regular installments.
Ownership of the asset will eventually pass to the hirer, but not until last installment has been paid.
No security/collateral needed but interest charges very high (often > 20%). So HP often used as last resort by those who cannot get a medium-term loan.
What is an installment?
A fixed sum of money due as one of a number of payments spread over an agreed period of time.
What is Collateral?
Something used as security for repayment of a loan. If you cannot pay back the loan, the lender can take the asset, E.g: your property, and sell it to recover the money owed by you.
