Loans & Debt

Question 1

Indebtedness

Answer 1

Refers to the state of being indebted to another part for an amount of money borrowed.

Question 2

Good Debt

Answer 2

• Money borrowed to purchase an appreciating asset.
• Helps generate income and increase net worth.
• Often there are tax incentives for good debt investments.

Question 3

Bad Debt

Answer 3

• Money borrowed to purchase a depreciating asset
• Limits what can be done with money as interest payments and fees drain away savings.

Question 4

Grey Areas of Debt

Answer 4

e.g debt consolidation loans, borrowing to invest/margin loans, using points like frequent flyers.

Question 5

Personal Loan

Answer 5

Smaller loan than a mortgage, and is usually used to finance a car or make home renovations.
1-5 year duration as opposed to 30 years for mortgages.

Question 6

What are sources of personal loans?

Answer 6

• Banks (provide a wide range of financial services to various sectors, including (through subsidiaries) funds managements and insurance services)
• Credit Unions (mutually owned institutions such as teacher credit union)
• Financiers (provide loans to households and small-medium (SME) businesses)

Question 7

Subsidiary

Answer 7

A company that belongs to another company, usually referred to as the parent company or holding company.