Chapter 11 - Borrowing

Question 0

What is APR?

Answer 0

Annual Percentage Rate. True rate of interest charged on an account.

Question 1

What is an overdraft?

Answer 1

Permission granted to a current account holder by their bank to withdraw more money then they have in their account.

Question 2

What is security?

Answer 2

Anything of value (e.g. House) given to the lender in exchange for a loan. If the borrower does not repay the loan the lender may take the security and sell it to get their money back.

Question 3

What is a guarantor?

Answer 3

Person who agrees to repay a loan for another person if they are unable to make their repayments.

Question 4

What should you consider when deciding to borrow?

Answer 4

1. Do we really need the item.
2. Could we wait until we have saved the money.
3. Cn we raise the money without borrowing.
4. Can we afford the monthly payments.

Question 5

What is a term loan?

Answer 5

Loan taken out for a fixed period of time usually up to 5 years max. both the loan and interest must be paid back on a regular basis.

Question 6

What are the advantages to a mortgage?

Answer 6

1. Know exactly how much you have to pay each month.

2. Interest rate is lower then on bank overdrafts or term loans.

Question 7

What are the advantages of having a loan with the credit union?

Answer 7

1. Interest charged is lower then other financial institutions.
2. Repayments can be arranged to suit the borrower.

Question 8

What is a moneylender?

Answer 8

Person who gives a loan to another person who for one reason or another cannot borrow the money from a financial institution. Usually have a very high rate of interest.

Question 9

What should you consider when applying for a loan?

Answer 9

1. How much is needed.
2. How long is needed.
3. Where are the lowest rates.
4. How much can be paid back each month.
5. Still be able to afford rates if they grew.

Question 10

What will the lender ask when applying for a loan?

Answer 10

1. Personal details of the borrower
2. Why they want the loan
3. Does the borrower have security
4. Has the borrower been saving regularly
5. If the borrower is renting and if they have a mortgage
6. Does the borrower have a secure job

Question 11

Name 2 rights of a borrower.

Answer 11

1. Must be told the APR (Annual Percentage Rate) of interest.
2. Must be told the total cost of the loan.

Question 12

Name 2 responsibilities of a borrower.

Answer 12

1. Make sure loan is payed back in time.

2. Tell the truth when filling out the loan application form.

Question 13

What is flat rate interest?

Answer 13

This interest rate is based on the original amount borrowed.

Question 14

What are the types of borrowing?

Answer 14

1. Overdraft
2. Term Loan
3. Long-Term Loan/Mortgage
4. Credit Union Loan
5. Moneylender