Borrowings - Chapter 5
Borrowers Rights
Must be told:
- APR of interest
- Total cost of loan
- Amount & number of payments
- Deposit or final payment amounts
Right to cancel the loan within 14 days of signing the agreement
Where to borrow from
Borrowers responsibilities
- Must pay in full and on time.
- Must use money for agreed purpose (reason).
- Must budget their money to make sure they can make the repayments monthly.
- Commercial Bank
- Credit Union
- Moneylender
Sources of Finance
Long Term (more than 5 years)
Medium Term (1 - 5 years)
Short Term (up to 1 year)
- Long term loan
- Mortgage
- Term / personal loan
- Hire purchase
- Renting
- Bank Overdraft
- Credit cards
- Moneylender
Cost of Borrowing
Flat Rate of interest
Annual Percentage Rate of interest
- Interest is based on the original amount borrowed. Does not take into account that the amount we owe reducing after payments are made.
- Takes into account that the amount we owe is decreasing as payments are made. Amount of interest reduces as you make payments and the balance decreases.
Security
Anything of value that the borrower will accept in exchange for a loan. If a borrower does not repay the money, then the lender may take the security and sell it to get their money back. E.g. the deeds of your house.