Types of Borrowing

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# Types of Borrowing - PowerPoint PPT Presentation

Types of Borrowing. 4.1 Students can identify different types of borrowing and explain the process of paying back borrowed money. Why Borrow?. Borrowing is usually reserved for big ticket items that you couldn’t just save for: Buying a Car Buying a House Paying for an Education.

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## Types of Borrowing

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### Types of Borrowing

4.1 Students can identify different types of borrowing and explain the process of paying back borrowed money.

Why Borrow?

Borrowing is usually reserved for big ticket items that you couldn’t just save for:

• Paying for an Education

(“Meaty, fatty and delicious”)

Whenever you borrow money, you
• Are getting credit
• Are going into debt
The Profit Motive (again)
• Any institution you borrow money from will make you pay them back with interest
• Interest = the \$ you pay to borrow \$
• Interest rate = expressed as a percentage

Why are banks and lending institutions in business?

Simple Interest Formula: I = P x R x T

I = interest

P = principal (the amount borrowed)

R = interest rate (decimal number)

T = time (number of years)

First you multiply the interest rate by the amount borrowed (principal), and then that amount is multiplied by the number of years (or partial years) you take to repay what you borrowed.

Annual Percentage Rate (APR)
• Lenders are required to tell you the annual percentage rate (APR) in writing before you sign an agreement.
• The APR is the interest rate calculated in a consistent way so it’s easier to compare different borrowing options. It
Other Important Terms to Know
• Downpayment = initial upfront portion of a total amount due usually paid in cash when finalizing a transaction
• Balance = the total amount of money that a person still owes (may include interest).
What do YOU Think?

Are these good reasons to borrow money?

• Talking out a \$5,000 student loan for college tuition
• Charging dinner and movie tickets during a night out with your friends
• Buying a laptop that’s on sale using the store’s financing program
• Getting a loan to pay your credit card bills
• Charging repairs to get your car running again
• Borrowing cash from a friend to buy some magazines