Borrowing Flashcards
(29 cards)
What is borrowing
M r m f a p o f i, i e f a p t p b m, w i a a a t i t f
means receiving money from a person or financial institution, in exchange for a promise to pay back the money, with interest at an agreed time in the future.
What is interest
I t a c o t o t m y b t y m p i y a b m f a f i - i i t f i r f L y t m
is the additional cost on top of the money you borrow that you must pay if you are borrowing money from a financial institution - it is the financial institution’s reward for lending you the money.
Factors to consider before borrowing
- D i r n t i
- C i g t m a o w, w h t b
- H m w i c? T a t i y m p
- C i a t r
- Do I really need the item?
- Can I get the money any other way, without having to borrow?
- How much will it cost? Think about the interest you must pay.
- Can I afford the repayments?
What is instalment
A f s o m d o t s d f a s p o t u t L + i i r
is a fixed sum of money due on the same date for a specified period of time until the loan plus interest is repaid.
What is an asset
A o b a i, h o b t i w m
is anything owned by an individual, household or business that is worth money e.g a house, a car, machinery
What is creditworthiness
A e o s a t p o a L b o t s a b h
is an estimate of someone’s ability to pay off a loan based on their saving and borrowing history.
What is a guarantor
A p w h a g c r w a t p y L f y i y a u t d s
is a person who has a good credit rating who agrees to pay your loan for you if you are unable to do so.
What is collateral
A a, u f s f r o a L EXAMPLE t d t a h. I y c r t L, t f i c t t a t p t L
an asset, used for security for repayment of a loan e.g the deeds to a house. If you cannot repay the loan, the financial institution can take the asset to pay the loan.
What is in insolvent
W a p i u t p t d o a t n t
means when a person is unable to pay their debts off as they need to.
What is responsible borrowing
T y d n b m t y a a t p b
that you do not borrow more than you are able to pay back.
Reasons for borrowing
- T p f a e 2. T d w a s t d
- F e
- F u e
- T p f c f
- To pay for an expensive item e.g a house, a car
- To deal with a short term deficit (when a person / household cannot afford to pay their bills on time)
- For emergencies e.g an emergency operation
- For unplanned expenditure e.g repairs to a house
- To pay for college fees
Risk of borrowing FINANCIAL STRESS
I y a u t r t L y m e s a y m b a r o L y h
If you are unable repay the loan you may experience stress as you may be at risk of losing your car/home
Risk of borrowing CREDIT RATING
I y m a r, t w d y c r m i d f y t b i t f
If you miss a repayment, this will damage your credit rating making it difficult for you to borrow in the future
Risk of borrowing Lose collateral control
I y a u t r t L y m L t i y u a c
if you are unable to repay the loan you may lose the item you used as collateral (security)
Types of borrowing: SHORT TERM
Example: b d
Repayment length: w 1y
Source of Finance: c c
Example: budget deficit
Repayment length: within 1 year
Source of Finance: credit card
Typers of borrowing: MEDIUM TERM
Example: b a c
Repayment length: 1-5 y
Source of finance: h p
Example: buying a car
Repayment length: 1-5 years
Source of finance: hire purchase
Types of borrowing: LONG TERM
Example: b a h
Repayment length: 5 y
Source of finance: m
Example: buying a house
Repayment length: 5 years
Source of finance: mortgage
What is a bank overdraft = w y s m m t y h I y b a
Reason You Might Use This Type of Finance = t p a h b
When you spend more money than you have in your bank account
To pay a household bill e.g electricity bill
What is a credit card= a c c b i n a p f t a a L d u 30 d
Reason You Might Use This Type of Finance:= t b a p f a b
A credit card holder can buy items now and pay for them at a later date (usually 30 days later).
To buy a present for a birthday
What is a medium term loan= t i a L t i p b, w i, b 2-5y
Reason You Might Use This Type of Finance= t g a n k f i y h
This is a loan that is paid back, with interest, between 2-5 years.
To get a new kitchen fitted in your house
What is a hire purchase= h p i a a w y p f a i i i, a y o o i a t f p
Reason You Might Use This Type of Finance= b a c
Hire purchase is an agreement where you pay for an item in installments, and you only own it after the final payment.
Example: Buying a car
What is leasing= a p r a i f a L c. T p t u t i f a s p o t b t n o t a
Reason You Might Use This Type of Finance= t u a p o m t m r t y h
A person rents an item from a leasing company. They pay to use the item for a set period of time but they never own the asset.
Example: To use a piece of machinery to make repairs to your home
e.g a digger
What is a mortgage= a m i a L-t L t i t o t b a p. T c b p o b 15-35y
Reason You Might Use This Type of Finance= t b a h
A mortgage is a long-term loan that is taken out to buy a property. They can be paid off between 15-35 years.
Example: to buy a house
Applying for a loan
1. P d
2. E d t s y h s i c i
3. S r t s y h m i r f e
4.b h t s t y h r o t
5. R f L
6. A p a t p o a L b o s a b h
7. A b m p a s t t s h a i a t r a L m b i b a i i i r
- Personal Details e.g name, date of birth
- Employment Details to show you have stable income coming in
- Savings Record to show you have money in reserve for emergencies
- Borrowing History to show that you have repaid on time previous loans
- Purpose (Reason) for the Loan
- Creditworthiness: an estimate of a persons ability to pay off a loan based on savings and borrowing history.
Note: Lenders will check the Irish Credit Bureau - Stress Test: a bank may perform a stress test to see
how an individuals ability to repay a loan may be impacted by an increase in Interest rates
