1. Why borrow money? . . . . . . . . . . . . . 93 2. What is the cost of borrowing?. . . . . . . . 93 3. For how long can money be borrowed? . . 94 4. What short-term sources of personal finance are available? . . . . . . . . . . . 95
5. What medium-term sources of personal finance are available? . . . . . . . . . . . 99
6. What long-term sources of personal . . . . . finance are available? . . . . . . . . . . . 103
7. What happens if I cannot repay my loans? 104 Chapter Review . . . . . . . . . . . . . . . 106
Case Study Buying a Car
Frank Foley’s car has been causing a lot of problems recently and he has decided it is time to replace it. Jason and Lucy are keen for him to buy a cool new replacement and have lots of suggestions about what model he should buy. However, Frank wants to buy a good quality second-hand car with low mileage. He says that a car is not an investment, it is actually an asset that usually depreciates rapidly in value.
‘Did you know that a once a new car is driven away from a garage by a customer it immediately loses 20% of its value?’ says Frank. ‘That means that if I bought a new car for €20,000 today, it would only be worth €16,000 tomorrow. Depending on the type of car, in three months’ time its value could have dropped further to about €13,000. I can get far better value buying a good second-hand car.’ Frank has been shopping around and has seen a car he likes at the nearby Academy Motors garage. He needs to figure out the best way to finance this purchase.
