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Factors to consider before borrowing Is it really needed? Can they wait and save?
Factors to consider before borrowing Can they afford to pay back what they borrow plus interest? Are there any alternatives?
Two types of interest Flat Rate APR
Flat Rate is... Flat rate is interest rate on the original amount borrowed. It makes no allowance for the fact you have made some repayments.
Annual Percentage Rate (APR) is... is the actual rate of interest which will be paid by the borrower. It takes into account any repayments already made. APR also includes; administration costs, set costs etc. All Adverts must show APR.
Types of loans available Short Term Medium Term Long Term
Short Term is... must be repaid within 1 Year. E.g. Overdraft
Medium Term is... usually repaid between one and five years. E.g. Furniture, car
Long Term is... repaid over many years e.g. Mortgage on a house/apartment
Who can you borrow from? Banks Building societies (specialize in mortgages) Credit Union Money lenders
When applying for a loan what will lending institutions need to know? How much you want to borrow? For how long you want to borrow? Why you wish to borrow the money? How you intend to pay it back? Your credit history (have you had loans before) How much do you earn? What do you work at?
What is Collateral/Security? This is something the bank or building society can sell to get back the money if the borrower fails to repay the loan e.g. deeds of property.
What is Debtor? When the borrower borrows money from the bank they then become the debtor of the financial institution.
What is a Money Lender? Money lenders are people who have a license to lend money. Usually a last resort and charge very high interest rates.
Why do people borrow from money lenders? No security/collateral needed. People are unable to borrow from banks and building societies maybe because they are unemployed and already have loans that they have not yet repaid.
What is meant by the term Bankrupt? When the borrower is unable to repay the loan, the borrower may be taken to court. If the total value of everything owned by the borrower e.g. house, car, shares, is less than the amount owed, he/she may be declared bankrupt.
What is Annuity Mortgage? the amount borrowed and the interest are repaid in equal installments over the period of the loan.
What is Endowment Mortgage? only the interest is repaid to the bank over the period of the loan the Borrower also has to take out a life assurance policy, paying an agreed amount each month. At the end of loan period this policy is cashed and is used to repay the amount borrowed.
Created by: economicsclass
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