Borrowing

• Reasons for borrowing money:

  • To make an expensive purchase now and spread the payments out over a period of time
  • To desire your needs and wants without leaving yourself short of money for current expenditure
  • To fulfil your needs if your income isn't enough
  • To pay for an unexpected event, such as a surgery
• Before borrowing money, we should decide if:

  • Do we really need the item we want to purchase?
  • Do we need the item now or can we wait until we have saved the money ourselves?
  • Can we raise the funds for the item ourselves, ex) by selling something we own?
  • Can we afford the monthly repayments of the loan or will we be living beyond what we can afford?
• Rights of a person borrowing money:

  • They must be told the rate of interest
  • The borrower must be informed of the total cost of the loan
  • The amount of instalments must be disclosed
  • They can cancel the loan within 14 days of signing the agreement
  • A final payment or deposit must be mentioned if there is any
• Responsibilities of a person borrowing money:

  • The borrower should budget properly so that they have the funds to cover the loan instalments
  • The borrower must make sure that the loan is repaid fully in the agreed time
  • The borrower must use the loan money for the agreed purpose
• Before applying for a loan, ask yourself this:

  • How much money do I need to borrow?
  • How long do I need to borrow money for?
  • Where can I get the lowest interest rate?
  • How much can I afford to pay back each month?
  • Can I afford future monthly instalments if the interest rises?
• Before receiving the loan, the lender will ask:

  • Does the borrower have a secure job?
  • Does the borrower save regularly?
  • Why does the borrower need the loan?
  • What collateral does the borrower have?
  • How much money does the borrower earn and spend each month?