The document discusses various topics related to borrowing money, including: - Things to consider before borrowing, such as whether an item is needed, if the money could be saved up or raised in other ways, and if repayments can be afforded. - Where people can borrow money from such as banks, building societies, credit unions, and moneylenders. - Different types of borrowing including short, medium, and long term options. - Rights and responsibilities of borrowers in the loan process. - Information required by lenders when applying for a loan. - How interest works on loans including flat rate interest and annual percentage rate calculations.

1. 11
Borrowing

2. 11 Borrowing
• Before deciding to borrow money we should ask:
 Do we really need the item?
 Could we wait until we have saved up the money we
need?
 Could we raise the money in other ways?
 Can we afford the repayments?

3. 11 Borrowing
• People borrow money from:
 Banks
 Building Societies
 Credit Unions
 Moneylenders

4. Types of Borrowing
SHORT TERM:
• Bank Overdraft – Customer applies to their bank for
permission to overdraw their current account. An
overdraft is usually given up to a certain limit which
means that they can overdraw up to that amount.
• Credit Card – Buy goods on credit and pay back
money later. E.g. Visa Card.

5. MEDIUM TERM:
• Term Loan – you borrow money for a stated purpose
and agree to make a fixed number of repayments at
regular intervals.
Interest is calculated on the sum borrowed.
E.G. Buying a car

6. LONG TERM:
• Mortgage – You borrow money for a long time (20 –
30 years) in order to buy a house.
The deeds to the house are used as collateral.
Interest is calculated on the sum outstanding.

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• Rights of a Borrower
 To be told the Annual Percentage Rate of interest
(APR – True Rate).
 To be told the total cost of the loan.

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• Rights of a Borrower
 To be told the number of repayments and the
amount of each repayment.
 To be told about any deposit or
final payment.
 To be told they have the right to
cancel the loan agreement within
14 days.

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• Responsibilities of a Borrower:
 To budget properly and so be able to repay the loan
each month.
 To tell the truth when filling out the application
form.
 To use the money for the correct purpose.
 To repay the loan in the agreed time.

10. 11 Borrowing
• Information required by the lender when applying
for a loan includes:
 name and address of borrower
 employment details
 income details
 other borrowings
 present savings

11. Borrowing
Interest:
• If we want to borrow money from the bank or
building society we also pay a price for this money.
The price of borrowed money is called interest and
is usually calculated as a percentage of the amount
borrowed.
• http://www.moneysense.ulsterbank.ie/schools/students/

12. • Flat Rate: this is the annual interest rate calculated
as a percentage of the original sum borrowed, for
example
 Mary borrowed €3,000 from AIB to be repaid over
three years at 10% per year.
 Lets assume that one payment of €1000 + interest is
made at the end of each year.

13. • Flat rate:
€3,000 @ 10% = €300
Balance Repayment Interest
Year 1 €3,000€1,300€300
Year 2 €2,000€1,300€300
Year 3 €1,000€1,300€300
Total interest €900
Total repayment €3,900

14. • Annual Percentage Rate (APR): This is the actual
annual rate of interest charged on a loan. It takes
into account the fact that the loan is reducing each
year as repayments are made.
 Mary borrowed €3,000 from AIB to be repaid over
three years at 10% per year.
 Lets assume that one payment of €1000 + interest is
made at the end of each year.

15. APR:
Balance Repayment Interest
Year 1 €3,000€1,300€300
Year 2 €2,000€1,200€200
Year 3 €1,000€1,100€100
Total interest €600
Total repayment €3,600

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Calculating loan interest:
•Martina Kelly wants to borrow €15,000 over three
years which means she is able to repay €5,000 off the
loan, plus any interest due, at the end of each year.
•Gilroy Finance Ltd offered the money at a flat rate
of 8% per annum.

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Solution (Loan Interest)

18. 11 Borrowing
Solution (Loan Interest)

19. 11 Borrowing
Solution (Loan Interest)

20. 11 Borrowing
Solution (Loan Interest)

21. 11 Borrowing
• Lynch Finance offered the money at 11% APR (True
Rate).
Solution (Loan Interest)

22. 11 Borrowing
• Lynch Finance offered the money at 11% APR (True
Rate).
Solution (Loan Interest)

23. 11 Borrowing
• Lynch Finance offered the money at 11% APR (True
Rate).
Solution (Loan Interest)

24. 11 Borrowing
• Lynch Finance offered the money at 11% APR (True
Rate).
Solution (Loan Interest)