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Borrowing for Household & Individuals (Key Words (Instalment: An…
Borrowing for Household & Individuals
Borrowing
Definition
Borrowing means receiving money from a person or a financial institution, in exchange for an obligation to pay back the money, with intrest, at an agreed time in the future
Reasons for (Household) Borrowing
2.
To deal with short-term deficits:
If a household is facing a budget deficit and doesn't have a sufficent savings to make up the difference, they may have no option but to look for short-term finance
3.
For emergencies:
From time to time things will go wrong or break down and households may need to borrow money to pay for repairs or unexpected cost.
1.
To pay for very expensive items:
It is very difficult for most people to buy outright a hig-cost item such as a car or a house
Different Types of Loans
Medium-Term Loan (1 to 5 years)
1.Medium-Term Loan
This source of finance can be accessed from a range of financial institutions including banks, building societies and credit unions.
Hire Purchase (HP)
Hire Purchase is a medium-term source of finance in which the purchaser pays a deposit followed by an agreed number of fixed regular instalments.
3.Leasing
Involves the renting of an asset. The lease agreement allows a household or individual to have immadiate possesion & use of the asset provided they make fixed regular payments to the leasing company.
Long-Term Loan ( 5 years or more)
Long-Term Loan/Mortgage
Household and individuals generally use a special long-term loan called a mortgage for buying property.
Short-Term Loan (within 1 year)
:
1.Bank Overdraft
A current account holder is given permission to withdraw more money from their account than they actually have in it.
2.Credit Card
Cardholders can buy items now and pay for them at a later date.
Applying for a loan from a financial institution
Money can be borrowed from the following financial institutions in Ireland
Commercial banks
Credit Unions
Building societies
Take time to consider answers to the following important questions
How much money do I need to borrow?
What can I afford to pay back each week or month
How long do I need to repay the money?
Where can I get the best rates of intrest
Information needed for a loan application
Personal details
: Your address:whether you rent or have a mortgage
Employment details:
You will be asked for your most recent payslips to see how much your earn
Savings record:
Lenders like to see a history of savings
Borrowing history:
Lenders like to see evidence that you have repaid previous loans on time and in full
Purpose of the loan:
You may have to provide details and costings
Key Words
Instalment:
An instalment is a fixed sum of money due as one of a number of payments spread over an agreed period of time
Asset:
An asset is anything owned by a person or business that has a monetary value
Creditworthiness:
Creditworthiness is an estimate of the ability of a person to pay off a loan, based on their saving and borrowing history with financial instituions
Guarantor:
A guarantor is a person of good financial standing who agrees to repay a loan for you should you be unable or unwilling to do so
Collateral:
Collateral is something used as security for repayment of loan
Moneylenders:
Moneylenders are individuals or companies whose main business it to lend money