Borrowing
money can be borrowed for varying lengths of time
short term
less than a year
e.g. Overdraft - you take more money out of your current account than you have put into it. interest is calculated based on the sum outstanding.
e.g. bridging loan- a short-term loan given to people who have been approved for a mortgage but have yet to receive the money
medium term
one to five years
term loan - you can borrow money for a stated purpose and agree to make a fixed number of repayments at regular intervals
personal loan - used for buying a car, furniture
long term
mortgage - 20-30 in order to buy a house
more ten 5 years
cost of borrowing
the interest rates is the main cost of borrowing
flat rate of interest is the interest charged based on the full life of the loan. this is calculated as simple interest
The true rate of interest is all the other cost are including. If interest is calculated on the sum outstanding, this is also taken into account. This is also taken into account. also known as the annual percentage rate
rights of the borrower
any advertisement for a loan must include the APR
tell you what happens if you fail to keep up repayments