topic 6 libf


Why might we borrow money

Sometimes we want to buy something but we do not have enough money. We can:

- Decide not to buy what we want

- Save until we have enough money

- Borrow the money to buy it now

1 of 12

How can borrowing money work

Adults aged 18 or over from organisations offering ‘credit’.  borrow payback, The amount they borrowed, interest on what they borrowed and any fees the lender charges.

2 of 12

Personal loans

People use personal loans to pay for specific items such as a car or furniture. They repay the loan over an agreed time, paying off a bit each month.

3 of 12


An overdraft lets current account holders borrow money when their account balance gets to zero. The money is borrowed from the account provider. Overdrafts are meant to cover quite small amounts for short periods of time. You must ask your bank or building society for an overdraft - this is an authorised overdraft. Interest is charged each day the borrower uses his overdraft. If you do not ask for an overdraft but use one anyway, this is an on authorised overdraft.

4 of 12

Credit cards

Credit cards or plastic cards that let you buy now and pay later. They work like debit cards but you borrowed the money from the card company, up to a ‘credit limit’. A monthly statement shows everything you brought using the card. If you pay off the credit for a month no credit is charged. If you pay off some of the credit, you must also pay interest. A credit card holder must make the minimum repayment each month. A minimum repayment covers the whole month’s interest, Plus some of the amount borrowed. It takes a long time to pay off borrowing if a cardholder only makes the minimum repayment each month.

5 of 12

Can we afford to borrow

Borrowing is a legal commitment, so we need to think about whether we can afford it. A credit card may be tempting, but the amount you pay back builds up unless you pay off what you borrowed in full.

6 of 12

Checking our budget

If it looks like we can’t afford to borrow, sometimes we can move things around in our budget we have money.  if there is no money available to meet repayment we need to be sensible and not borrow.

7 of 12

Considering interest

To decide whether we can afford to borrow, we must consider the interest we will pay on top of the amount borrowed. When advertising a loan, lenders mistake the annual percentage rate (APR). The APR let’s borrowers compare the cost of different loans. An APR includes:

- The interest rate

- How often the interest is charged

- Any fees charged

APRs mean any ‘hidden fees’ will show up in a large APR figure. A personal loan has a fixed APR, which means the monthly pay payments stay the same. A variable APR means the lender can change the interest rate. The amount you pay can go up or down each month.

8 of 12

How do we choose the right lender

To get the best deal, we need to compare APRs. We must also make sure we know about any other fees we might have to pay.

9 of 12

What is interest-free credit

Some lenders offer ‘interest-free’ credit to tempt new borrowers. This means no interest is added to the amount borrowed. But almost nothing is truly free so you need to look closely at interest-free offers.

10 of 12

Which lenders should we avoid

A payday loan is quite a small loan that covers a lack of money before the borrowers next payday. The interest charged is usually how are you been a normal credit card, so the borrowing can be very expensive if it’s not paid in full.

11 of 12

loan sharks

Lenders known as loan sharks are illegal. They do not have legal permission to lend, and they may not reveal the APR of their loans. Loan sharks take advantage of people who need money and they charge very high interest. They may use frets to force borrowers to repay them. You can check whether a lender has permission to lend.

12 of 12


No comments have yet been made

Similar Other resources:

See all Other resources »See all finance libf resources »