Banking and borrowing
Very few of us will be able to go through life without borrowing money at some point. It may be for a car, holiday or furniture. It may even be to buy a house. However, we usually think of that loan as a mortgage.
Today, many lenders, whether they are banks or building societies, are pretty much falling over themselves to lend money, for almost any purpose. Before looking at borrowing, let’s look at banking.
The purpose of a bank was originally two-fold. It was a place where someone could deposit money and withdraw all or part of it, when it was needed again. The advantage was that, rather than keep the money under a mattress; the bank would add interest on to your deposit.
The bank made that interest by lending out your money to someone else who needed to borrow. The bank would charge a rate of interest to the borrower and in turn, would keep some of the interest, before passing the rest on to you, the investor.
There are two basic types of borrowing. These are secured and unsecured.
A secured loan means that the lender owns property (all or part) or another asset of yours, until such time as the loan is repaid. If you do not repay the loan, then the lender can sell that asset to cover the amount of money you owe.
An unsecured loan is different, in that a lender allows you to borrow money, but they have no title or ownership of any of your property. However, this does not mean that you can borrow a sum of money and not repay it. If you do not meet your obligations, the lender has the right to ask the sheriff officers to arrest your wages or sell some of your assets to meet the outstanding borrowing.
Storecards and credit cards.
To be continued...