Chapter 11~Borrowing

Question 1

Interest?

Answer 1

The price we payed for borrowed money

Question 2

Loan?

Answer 2

A source of finance from a financial institution. Money that is borrowed is repayable with interest over an agreed period of time

Question 3

Overdraft?

Answer 3

Permission granted to a current account holder, by their bank, the withdraw more money than there is in their account.

Question 4

Term loan?

Answer 4

A loan taken out for a fixed period of time, usually up to a maximum of five years. Both the loan and the interest on it are paid back on a regular basis

Question 5

Long-term loan?

Answer 5

A loan taken out for a period of more than five years. Both the loan and the interest on it are paid back on a regular basis

Question 6

Money lender?

Answer 6

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

Question 7

APR?

Answer 7

Annual percentage rate. The actual/true rate of interest charged on a loan each year. This takes into account that the amount owed is going down each year as we pay back the loan

Question 8

Security/collateral?

Answer 8

Anything of value that you give you bank in exchange for taking out a loan. If the borrower doesn’t repay the loan, the lender may take the security and sell it to get their money back

Question 9

Guarantor?

Answer 9

A person who agrees to repay a loan for another person if they are unable to make their repayment

Question 10

4 considerations when deciding to borrow

Answer 10

• do we really need the item
• can we raise the money ourselves
• can we afford to pay the monthly repayments
• do we need the item now or could we wait until we have the money

Question 11

3 considerations when applying for a loan

Answer 11

• how much do we need to borrow
• how long do we need the loan for
• where can we get the lowest interest rates

Question 12

3 things a lender will ask for before giving a loan

Answer 12

• personal details of borrower
• does the borrower have security to offer?
• what does the borrower want the loan for?

Question 13

Financial institutions who offer loans?

Answer 13

• commercial banks
• building society
• credit unions

Question 14

5 types of borrowing

Answer 14

• overdraft
• term loan
• long-term loan/mortgage
• credit union loan
• moneylender

Question 15

3 rights of a borrower

Answer 15

• to be told the APR
• to be told the cost of the loan
• to be told the number of payments and the amount of each

Question 16

2 types of interest

Answer 16

1) flat rate (calculated like simple interest)

2) Annual percentage rate (APR)