| 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 |
