+ Personal Finance Borrowing

+ Recap Define the term “investing” Why do some investments have high and low levels of risk?

+ Borrowing A common way for individuals and families to purchase what they want now is to borrow. Borrowing money involves applying to spend funds from a bank or lending institutions for a number of personal reasons, such as: To purchase a new car/house To go on an overseas holiday To pay for educational expenses To invest

+ Where Can You Borrow From? Building Societies Banks Credit Unions

+ Advantages and Disadvantages ADVANTAGESDISADVANTAGES Allows you to purchase your needs and wants now May not be able to repay the amount borrowed Does not require you to save to make a purchase Fees and charges (i.e. Interest) Develop a credit rating that shows your level of responsibility in terms of borrowing and repaying money May not be able to borrow the amount that you need to purchase your needs and/or wants

+ Activity Research and consider the types of loans available at the following financial institutions: Commonwealth Bank – St George – Citibank – Heritage Building Society – Answer the following questions: ① How much can you borrow as a. 16 yr old, 25 yr old & 40 yr old? For a Home, and Car ② What do you need to qualify for a loan? Explain your answer.

+ Extension / Homework Smart Money website. (Smartmoney.com.au) Quizzies – Borrowing for next lesson. resources/quizzes/borrowing-and-credit- quiz

+ Types of Loans There are a number of loans available for individuals: Personal Loans – a set amount borrowed for a specific personal use Business Loans – to assist Business buying assests Credit Cards – a plastic card with a credit limit for purchases of the individual’s choice Home/Mortgage Loans – a large amount of money borrowed to purchase a property

+ Interest Rates It is important to understand that for every amount of borrowing, there are costs associated with this borrowing A bank will charge interest on the amounts borrowed. This is the bank’s way of earning money from their lending. Why? Where do the Banks get the money to loan you? GOOGLE BINGO - What is the RBA? What is their role in interest rate?

+ Activity By considering the below diagram, explain how the bank makes and spends money.

+ Types of Interest There are two types of interest rates: Fixed – the interest rate remains the same for the term of the loan Variable – the interest rate may change during the loan Why do Banks charge differing rates for different loans??? There are a number of levels of interest charged on loans: Personal Loans – Short term, high interest rate, approx % Business Loans – Short to Medium term, High interest rate 8- 12% Credit Cards – Short term, VERY high interest rate – 18-22% Home/Mortgage Loans – low interest rate. Long term 4-6%

+ Pop Quiz – part 1 Name three or more sources you can loan money from? Name two advantages, and two disadvantages of borrowing money? Name three or more types of loans available to you or your parent ? These loans can be either ………. or ………. ? Who sets the Interest Rates (or Cash Rate) in Australia? and on what day/week of each month? The current cash rate is set at what % interest? If you are borrowing for a holiday, what would the average interest rate be; a) 4-6%, 9-12% 14-18% %

+ Who Would You Lend To? Consider the following loan applications. Which person are you most likely to lend money to and the person you are least likely to lend money to: Sam Safi currently has two credit contracts. He has always paid his installments on time. Sam has recently lost his job and wants to borrow money to help him through this difficult time. Alice Dingo has been working for 12 years since leaving school. She has never had a loan as she has always paid for everything with cash. Alice wants to borrow money for a new car. Joe Cribb was declared bankrupt three years ago after getting into debt to the value of $ He has been working full time for the last two years and wants to borrow money to go on an overseas holiday. Danny Grimes defaulted on two loans 10 years ago. He has just finished paying off another loan. He is working two casual jobs. Danny wants to borrow money to pay for a part-time course.