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Basic concepts of loan and mortgage

Exercises on the basic concepts of loan and mortgage. Explaining what is a loan or credit. Explaining that if you have to make an expense for which you do not have the money immediately available, the lender (a bank or other lender) can advance the money through a loan or credit. Clarify that you then pay it back with interest. This is usually done in monthly installments. Borrowing money can be done in many different ways, adapted to the situation.


Reflection with the students when they really need a loan or credit. Clarify that a credit is usually not free. Explaning that you not only have to repay the borrowed sum, but also interest and costs. Reflect with students to think carefully before they decide to take out a loan. Inform the studetns that is always healthy to prepare for unexpected expenses, such as repairing the car or a broken gas boiler, by saving up a buffer. If you know well in advance what expenses are coming your way, see if it isn't better to save for it. This way you also get the necessary money, you do not have to pay for a loan and you may still earn from the interest on the money saved. Explaining to the students that there is a different credit for every need. Giving information on the different types of loans. As a private individual, peopel will be offered a mortgage or consumer credit: A mortgage loan is an amount that you borrow for the purchase of a home, a building plot or for a renovation. A mortgage loan is often a larger amount and the repayment period is usually long. Explaining that people can apply for a consumer credit if you want to buy a car or a new television, if you want to organize a wedding or if you temporarily have more costs and you have to go below zero on your account.

The different types of loans or credits


1. The mortgage loan

A mortgage loan is suitable for larger amounts, such as the purchase of a home. But the formula can also be interesting for expenses such as renovations or investments to make your home more energy-efficient. For the latter categories, you have to weigh the pros and cons against those of a consumer credit.


2. The installment loan

A lender such as your bank lends you a sum of money for a certain period. You repay a fixed part of the loan amount with interest at fixed times, usually monthly. Many lenders give their installment loans a commercial name according to the purpose for which they are taken out such as car loan, garden loan, holiday loan, etc. But there are also installment loans without a specific purpose. The term of the installment loan is limited by law. It depends on the amount of the loan.


3. The installment sale

Your merchant offers you the option to spread the payment of your purchase over time. This is also a loan that you have to repay at regular intervals, usually with interest. It can also be helpful to compare the costs and terms of the loan he offers you with loans from other lenders. A merchant who lends you money must adhere to the same credit rules as a specialized lender.


4. The lease

With some car sellers you can agree on mixed financing for a new car. You first rent your new car for a fixed monthly amount. After a predetermined period you can then choose to: Return your car to the garage. To buy him at a price that was fixed at the conclusion of the contract. You only become the owner of your car if you choose this option. Take enough time to determine whether mixed financing is cheaper than an installment sale or an installment loan. And ask yourself whether you can pay the agreed price after the agreed term.


5. The credit without interest

Some merchants sell goods on installment basis without charging fees or interest. The sum of the monthly payments then corresponds to the price of your purchase. This is an affordable offer, but make sure you can handle the monthly repayments. Otherwise, default interest and fines also apply here. Be vigilant and ensure that such a loan does not contain any 'hidden' costs or is subject to specific conditions. Even a loan without interest entails a great deal of responsibility. If for some reason you are unable to repay your debts (on time), there are also consequences.


6. The credit facility or budget facility to go below zero

This form of credit is a 'flexible cash reserve': You are given the option of having a cash reserve. You can freely withdraw the allocated amount according to your needs. The refund is also free as long as it is done within the agreed rules. For example, a fixed term for the cash reserve can be set. A common form of a credit facility is a budget facility. The bank allows you to go below zero on your current account, up to a predetermined maximum amount. You pay interest for the entire period that you go below zero. You determine how much you can go below zero in the contract with your bank. Play it safe and opt for a limited limit amount. Read all the conditions carefully before you apply for or sign a credit facility. In most cases you are obliged to clear your account to above zero at least once every three months. If you don't, you will receive a notification. If you do not comply with this, the bank can terminate your right to go below zero. Keep in mind that you often have to pay very high interest on these flexible loans for the period and the amount that you go below zero. The law determines the maximum interest rates. It is good practice to pay off such debts as quickly as possible. Then you have to pay less interest.


7. The credit card

Credit cards such as Visa, American Express or Mastercard are also a form of credit facility. You can pay with it in many shops, restaurants and also online purchases, without this going directly from your bank account. Once a month you will receive a statement for all transactions with your credit card. The amount of that settlement will then go to your current account on a fixed day in the month. Make sure that there is enough money in your account on that day. If you pay the statement immediately after receipt, no interest will be charged. But you can also opt for a spread repayment of the expenses with the credit card over time. The card is then linked to a credit facility. Your account is automatically debited monthly with the minimum amount that has been determined in advance. Please note, this form of credit is expensive: the interests on the amount that you do not repay are very high. Also be careful with these credits, because you can lose track of what you have already paid and what you have not yet paid. 8. Lend to a friend or family member Do you want to give your children a helping hand by lending them the amount of the notary fees for the purchase of their first home?

Once you’ve read the text on the topic, it’s time to test your knowledge.

Solve the following practice exercises!

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