MONEY MENTORS ACADEMY SESSION 4: BORROWING

1. MONEY MENTORS ACADEMY SESSION 4: BORROWING

2. Borrowing... what's the deal?

3. Aims of the session • Identify and understand important financial terms associated with borrowing and saving. • Distinguish between various types of credit and limitations/advantages of using such credit. • Learn about the range of issues associated with credit and borrowing and how this impacts on your desired goals. • Reflect on how understanding of the above can help you and others reach personal goals.

4. Q1) When may you need to borrow money? Q2) How likely is it that you will ever need to borrow?

5. Spend more than you otherwise could To bring forward spending To boost future income/Wealth

6. Average borrowing via credit rose to £8,025 per average UK adult

7. Money Mates Have a go at pairing the financial term with its related card! Variable A rate of interest that moves up and down =

8. APR Useful for Comparing loans AER Lets me know the return on my money saved PPI In the event I get sick, this will help me keep up to date with monthly payments, such as a mortgage Capital The overall amount of money saved or invested ISA

9. Can pay a higher interest rate than a normal savings account Bank account Will help me manage my everyday money Credit Unions Provide savings and loans products for their members. Membership depends on having a common bond Store Card available from some large high-street chains or groups. You must be at least 18 to apply, and is similar to a credit card. Pension Helps you save for retirement

10. Loan shark Unlicensed to lend money, and often lend at very high rates Mortgage Loan secured against your home. ATM Cash machine Credit history A record of how you have managed your borrowings in the past. Used by lenders to decide when to lend to you and how much Fixed

11. A rate of interest that stays the same

12. APR • A simple way to express the cost of borrowing (%) • Takes account of interest and other charges , as well as timing of payments. • As a rule: The higher the APR, the more you pay! Consider…Do you tend to get something for nothing?

13. Call today, don't delay LoansRus Meriden finance Borrow £1000 20% APR Pay us back £100 every month Borrow £1000 20% APR Pay us back at the end of the year in one lump sum

14. Variable Vs Fixed A rate of interest that stays the same – usually for a period of time A rate of interest that moves up and down

15. Credit history • A record of how you have managed your borrowings in the past. • Used by lenders to decide whether to lend to you now, and if so, what interest rate to charge. No way in hell are you getting any money!

16. Typical Typically 2/3 given @ that interest rate

17. Financial jargon Financial products Financial services But you can educate yourselves further….

18. Guess the APR!

19. Around the room are 6 different types of financial lenders, services and products. in your groups; you must guess the highest APR rates to the lowest. 1 being the highest, and 6 being the lowest. Please remember that these specific rates featured are purely examples, and may differ from 1 source to another.

20. Loan shark It is a criminal offence for anyone to lend money without having a licence to do so! Illegal money lenders are often referred to as ‘loan sharks’ because of the rough tactics they use to get money from you.

21. Pawnbrokers Pawnbrokers are a source of short-term loans, typically used to ease temporary cash flow problems. There are no credit checks because pawnbrokers only provide secured loans. You hand over to the pawnbroker an item against which the loan will be secured. The pawnbroker values the item and determines the maximum loan you can have. Monthly interest is also added to the loan.

22. Credit Union Credit unions are owned and run by their members, for their members. Some credit unions may lend to you as soon as you become a member. Others will lend to you after you have shown them you are able to save regularly

23. Bank overdraft The amount borrowed from the bank when you have spent more money than you have in your current account.

24. Payday Lender A payday lender provides payday loans - small, short-term loans that are intended to cover a borrower's expenses until his or her next payday.

25. Store card A type of credit card, but one which lets you buy things only in a narrow range of shops.

26. Lets see some of the highest to smallest rates of interest • Loan Shark – One illegal money lender was found to be lending at 117,000% • The Money Shop is currently offering a special offer to pay £9.99 for £100 loan.This is equal to 260.2% APR

27. Pawn direct - the less you borrow, the more you pay. For a loan of £50-500, the APR would be 79.3% • The Miss Selfridge store card charges 30% APR • Abbey's current account has a penalty fee of £25 a month if customers go into unauthorised overdraft, with interest on the debt charged at 28.7%

28. Personal loan with the credit union charges a typical interest rate of 13.68%

29. Types of borrowing… Store cards Credit cards Overdrafts Personal loans HP Buy now, pay later…

30. Do the newspaper clippings illustrate: Irresponsible lending or Uninformed borrowing

31. In May 2008 the reported an 18 year old woman living off state benefits was given £5,000 for a nose job! Income support = £60 a week If Roma was to pay off the loan @ £15 a week it would take just over 333 weeks to pay off/6.2 years This figure doesn’t include the interest rates/if she fell behind… Roma was a single mum living on state benefits and admitted that she didn’t have any savings. When she approached the bank for £4,000 to cover a £3,600 nose job, the bank responded by giving her a loan for £5,000.

32. …In addition, meet Phil McGrath On the 29th January, 2008 the reported this story • A DESPERATE divorcee is facing eviction after being flogged £42,000 worth of loans from a high street bank - despite living entirely off benefits. “I said I was unemployed, but the lady in the local branch crossed it out and put self-employed," said the 55-year-old. "It was incredibly irresponsible as I had no hope of going into employment."

33. Creditors and us Irresponsible lending The UK insolvency helpline - “debt from irresponsible lending is widely accepted as one of the main factors for the growing debt problem in the UK” • Increasing credit card limits too easily. • Increasing overdraft limits without authorisation. • Not requesting proof of income. • False and misleading advertising veiling interest rates. • Giving loans and credit cards to those on benefits • “Small print” trickery in long and text heavy credit contracts

34. Creditors and us Its not all about the creditors – we have a duty too take responsibility too! • Sustainable borrowing – financial planning. • Living within means. • Understanding financial jargon/products/services. • Confidence to question claims and say no! • Type of borrowing. • Keeping up with the joneses!

35. Borrowing to meet your goals How would picking an inappropriate type of credit with an high APR impact on meeting your desired goals?

36. What if you can’t access credit...

37. Forced to pay more Vulnerable to financial loss Denied other products FINANCIAL EXCLUSION Vulnerable to financial shocks Difficulty accessing employment Unable to afford other products

38. What happens if things go wrong? • Stay informed • Use the correct tools to help you • Communication • Record information • Question and challenge • Referrals/other organisations

39. moneyaande.co.uk - find free expert money advice services

40. Only 3 more session to go: World of Money and Budgeting Best Buys Borrowing Banking

41. You are one step closer to: • Gaining your ASDAN Qualification • Strengthening your community • AND graduating from the Academy

42. NEXT WEEK: Banking

43. Things to do before next Tuesday: 1) Fill in your budget diary for last month (use income and expenditure form) 2)Track your daily spending over the week (use daily record of spending)3) Think about who you are going to train!Please bring these to the next session…