Chapter 11~Borrowing Flashcards
(34 cards)
What factors should we consider before deciding to borrow money?
➰do we really need the item?
➰do we need the item now, or can we wait until we have eared the money ourselves
➰can we raise the money without borrowing e.g. Overtime
➰if we decide to borrow can we afford the monthly repayments?
What financial institutions lend money to there customers?
➰commercial banks (AIB, Bank of Ireland, Ulster Bank)
➰building societies (the EBS)
➰credit unions (Dundrum credit union)
What is interest?
The price we pay for borrowed money
How is interest calculated?
As a percentage of the interest
How do you choose what loan you need?
➰what you want the money for
➰how long you want the money for
What is a bank overdraft?
A bank overdraft is where you get permission from your bank to overdraw the amount in your current account. This means that you can withdraw more money than is in your current account
➰there is a limited amount of money you can overdraft
➰you must repay your overdraft by the end if each year
How long do you have to repay your overdraft?
By the end of the year
Why do people bank overdraft?
If they are short of money temporarily for reasons such as:
➰in a month where the are a lot of bills
➰at Christmastime
Explain the advantages of a bank overdraft?
➰you only pay interest on the amount of the overdraft you use
➰once you get an overdraft, you can use it whenever you like and as often as you like provided of course that you dont spend more than the limit agreed
What is a term loan?
A term loan is a loan taken out. The loan and the interest must be paid back on a regular basis.
What is the normal maximum time a term loan can be taken out for?
5yrs
What purposes are term loans available for?
New cars, new furniture, college fees
What documents should the borrower bring to the bank when applying for a term loan?
➰a copy of their household budget
➰a copy of their analysed cash book showing clearly that they can afford to meet the monthly repayments
What are the advantages to a term loan?
➰you know exactly how much you have to pay each month, as the repayments stay the same for the life of the loan
➰ the interest rate is lower than on a bank overdraft
What is a long term loan or a mortgage?
A long term loan is a loan taken out for for a period of more than 5 years. These loans are usually taken out to help us purchase something very expensive eg. A new house
How are long term loans/mortgages usually pid back?
Monthly instalments with interest over the lifetime of the loan
What is a mortgage?
When someone takes out a long term loan and are in the process pf paying it back, the deeds of their house are given to the lender until the loan is paid back. This offers safety to the lender. If the loan is failed to pay back the lender can sell the house with the deeds (ownership documents)
Advantages of a long term loan/mortgage?
➰You can purchase evexpensive acids such as a new house by spreading the payments over a long period of time
➰You get a reduction on your tax bill on any interest you pay on a morgage for the first 7 years
What is a credit union loan?
Members of a credit union who have been saving regularly over a period of time may apply to their credit union for a loan
How much can you take a loan from a credit union out for?
It depends on how much you’ve saved with them
Why are credit union loans taken out?
➰cars, holidays, home improvements, furniture
Who is a moneylender?
A moneylender is a person with a licence who gives a loan to someone who for one reason or another cannot borrow money from the bank
Do moneylenders lend at high rates of interest?
Yes
What factors should you consider once you have decided to take out a loan?
➰how much money do we need to borrow?
➰how long do we need the money for?
➰where can we get the lowest interest rates?
➰how much can we afford to pay back each month?
➰would we still be able to afford the monthly payments if rates were to rise in the future
