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Chapter 7:
Chapter 7: Borrowing
| Question | Answer |
|---|---|
| Borrowing | getting a sum of money from a financial institution which must be paid back with interest by an agreed time in the future. |
| Loan | a sum of money that is borrowed from a financial institution and then paid back in instalments with interest. |
| Short-term loan | This loan lasts less than 1 year |
| Overdraft | permission to withdraw more money from a current account than is in the account. A person can overdraw their current account up to an agreed limit. |
| Credit Cards | give the holder the option to borrow funds to pay for goods and services up to a limit set by the bank. |
| Moneylenders | allow people with a poor credit history to borrow. The interest is typically very high (at least 23%) and the loans are often given for a short period of time only. |
| Mid-term loan | This loan lasts one to five years |
| Hire purchase | allows a person to use a product while they are paying it off. |
| Leasing/renting/hiring | repaid over more than five years |
| Mortgage | a long-term loan for a house or other property. The loan plus interest is repaid in instalments over a long period of time. |
| Collateral | something valuable that the borrower promises to give to the lender if they cannot repay the loan. |
| Guarantor | a person (e.g. a parent or guardian) who has agreed to pay the loan if the borrower is unable to pay. |
| Cost of loan | = amount repaid – amount borrowed |
| Annual Percentage Rate (APR) | the annual rate charged on a loan. Interest is only charged on the amount left to be paid. |
Created by:
AnneB97
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