Borrowing money – Personal finance

List 6 reasons for borrowing money (FECIIP) – immediate satisfaction- convenience- possible savings- emergencies- improve your quality of life- forced saving
List 6 reasons for NOT borrowing money (FALIII) – interest charges- impulse buying- additional cost- loss of control- inability to repay- false sense of security
What do credit ratings determine our ability to borrow
why is it important to maintain a good credit rating? so that in future when we want or need to borrow money, we can be granted a loan
List ways of maintaining a good credit rating (PMMDS) – pay our bills and debts when they are due- manage our finances on a budget- maintain a good record of employment- develop a pattern of saving over time- seek help immediately if we get financial trouble
what are the two main types of loans and what are they classified as secured, unsecured and classified as personal loans
give key points about an unsecured loan with an example – no asset held in case of defaulting on the loan- higher risk to lenders- higher interest rate charged- eg. personal loan for holiday
give key points about a secured loan with an example – an asset is provided as a guarantee- lower risk to the lender- may attract a lower interest rate- eg. mortgage for property
What can the lender do if you fail to repay a secured personal loan? the lender can take the item from you
What can the lender do if you fail to repay a mortgage loan? the lender can sell the property to get back what is owed
List two other types of loans mortgage loan, payday loan
What are some types of lending institutions – bank overdraft: writing cheques greater than amount in account- credit cards: popular form of borrowing- store credit: purchase goods on credit at their stores
What happens when you apply for your first loan you will have no credit history and will have to convince the lender of your credit worthiness
What does the lender want to know when you are applying for a loan your ability to repay
What do you need to know when applying for a loan the terms and conditions of the loan
Why is your credit reputation important as it is a record of your credit history meaning your success in gaining credit depends on how responsible you have used it in the past
List factors that affect an individual’s credit rating (CCC) – Character: person’s reputation for honesty and reliability – Capacity: ability to repay the debt- Collateral: assets used as security for the payment of the loan
Define cash flow money coming in and out of a business
How much debt can you afford no specific amount, depends on certain individual
What is the main factor taken into account by lenders when determining to approve or disapprove a loan ability to repay
What is your ability to repay linked to and what is that? your financial position. which is:- what you earn (income)- value of your assets- any debts you may or may not have had
Define repossess to take back goods bought on credit if repayments have not been made
When may you be asked to ‘go guarantor’ when someone with a poor credit rating is trying to receive a loan
Define guarantor Someone who guarantees to pay back the money if the borrower does not
Define mortgage a loan for goods or a property

Leave a Reply

Your email address will not be published. Required fields are marked *