1.5 Choosing to borrow money. Why borrow? People’s spending needs change over their personal life cycle so it is often necessary to borrow money by means.

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Presentation transcript:

1.5 Choosing to borrow money

Why borrow? People’s spending needs change over their personal life cycle so it is often necessary to borrow money by means of a loan to make large purchases which can be repaid from earnings over an agreed period of time (the term of a loan) Emergencies might crop up *** if there are not enough savings, borrowing enables an essential item to be bought immediately***

Methods of Borrowing Mortgage – a loan to finance the purchase of real estate Credit Card – cards that may be used to borrow money to buy products and services up to a pre-arranged limited, each month you must pay at least the minimum repayment required of the outstanding balance. Store Card – similar to credit card but can only be used in the issuing store Personal Loan Hire Purchase – instalment plan whereby the loan company owns the item, but it becomes yours when the debt is fully paid off Overdraft – borrowing up to an agreed limit on a current account.

Interest Rate & APR APR = Annual Percentage Rate = the interest rate charged on loans and credit cards The interest rate is the COST of borrowing money.