Borrowing

• Borrowing


  Getting money from a person or financial institution and agreeing to pay it back at a later date, with extra interest
• Interest

  The financial cost for borrowing money
• Questions to ask before borrowing

  • Do I really need the item?
  • How much will it cost?
  • Can I afford the repayments?
• Reasons for household borrowing

  • To deal with short term deficits (e.g. Christmas)
  • For emergencies (e.g. break down, repairs, unexpected costs)
• Asset


  Something of value that you own
• Borrowing


  • Short term
  • Medium term
  • Long term
• Short term borrowing


  • Budget deficit
• Short term repayment period

  Repayment period within 1 yr
• Short term sources of finance

  • Bank overdraft
  • Credit card
• Medium term repayment period;

  Repayment period 1 to 5 yrs
• Medium term borrowing

  • Purchase of a new car
• Medium term sources of finance

  • Medium term loan
  • Hire purchase
  • Leasing
• Long term repayment period

  Repayment period more than 5 yrs
• Long term borrowing

  • Purchase of a house
• Long term sources of finance

  • Mortgage
• Hire purchase

  When you rent an item, and until the very last payment, it's theirs. After, it's yours. like a mortgage for things [ tv's etc]
• Responsible borrowing

  responsible borrowing means do not borrow more than you are able to pay back
• Credit card( short term sources of finance )


  Buy items now and pay for them at a later date, but interest rates can be very high, making it an expensive source of short-term finance. It is advised not to get a credit card.
• Bank overdraft ( short term sources of finance)


  Account holder with a bank overdraft has permission to withdraw more money from their account than they actually have in it
• Medium term loan( medium term sources of finance)


  Borrowers make fixed monthly repayments over an agreed time period. Plus interest.
• Leasing( medium term sources of finance)


  Renting an asset (e.g. car, printer). Make fixed regular payments to the leasing company. You never own the asset.
• Hire purchase (HP)(medium term sources of finance)


  Medium term source of finance used to purchase an asset. Agreed number of regular installments. Example: Harvey Norman TV.
• Collateral


  Something used as security for repayments of a loan. If you cannot pay back the loan, the lender can take the asset such as your property.
• Cooling off period (Hire purchase)


  The hirer has the right to withdraw from the agreement within 10 days of receiving a copy of the agreement.
• Personal Contract Plans (PCP)


  A type of car financing where the car buyer only needs a relatively small deposit and the monthly repayments
• PCP


  • Only financing part of the vehicle's cost
  • At the end of the agreed period (usually 3-5 years), the car buyer will not have paid the full purchase price of the vehicle
  • The car buyer has a number of options: pay the outstanding balance needed to buy the car outright, either from savings or by taking out a new loan, or return the car to the dealer
• PCP appears attractive because car buyers only need a relatively small deposit and the monthly repayments
• Personal contract plans (PCP)

  Car buyers only need a relatively small deposit and the monthly repayments are lower because they are only financing part of the vehicle's cost
• At the end of the agreed period (usually 3-5 years)


  1. Car buyer has a number of options:

  2. Pay the outstanding balance needed to buy the car outright, either from savings or by taking out a new loan

  3. Return the car to the dealer
• If the car is returned to the dealer, the car buyer may owe more money
• Long-term loan/mortgage


  Long-term sources of finance for buying property
• Mortgages


  • Available from commercial banks, building societies and some credit unions
  • Home used as collateral (security) for the loan
  • Lender can sell the property to recover money owed
• Mortgage repayment periods


  15 and 30 years
• Mortgage loan rates


  Lower than medium term loan rates
• Moneylenders( Long term sources of finance)


  Individuals or companies (excluding banks, building societies and credit unions) whose main business is to lend money
• Moneylenders


  • Charge up to 188% APR
  • Place borrowers under a lot of pressure to repay debts quickly
• Questions to ask before borrowing

  • how much do I need to borrow?
  • what can I afford to repay back each week/month?
  • how long do I have to pay the money
  • where can I get the best rates of interest
• Credit rating


  Credit worthiness checked by financial institution before granting a loan
• Irish Credit Bureau (ICB)


  Credit rating agency in Ireland
• Guarantor


  A person who agrees to be responsible for repaying the loan if you are unable or unwilling to do so