Enterprise: Strand 1 3. Long term


Long-term sources of finance means borrowing for five years or more and are used to purchase goods which are very expensive and last a long time. For example, a house (mortgage) or an investment in a new business.


Mortgage: a long-term loan to buy a house. Explanation Long- term loan


A long-term loan is taken out by the household/ individual from a financial institution to pay for something very expensive, for example starting up their own business.


Mortgage A mortgage is taken out by the household/ individual from a financial institution to buy a house.


Purpose of finance


The item is generally too expensive to save for and so a loan is required.


Cost


Interest must be paid on the loan. If the interest rate is variable, it may change from one year to the next. However, if it is fixed it will remain the same.


Risk


The household/ individual may be unable to keep up with repayments if their


circumstances change, e.g. job loss or the interest rates increase.


The item is generally too expensive to save for and so a loan is required.


Interest must be paid on the loan. If the interest rate is variable it may change from one year to the next. However, if it is fixed it will remain the same.


The household/ individual may be unable to keep up with repayments if their


circumstances change, e.g. job loss or an increase in the interest rates.


State the term of finance, the source of finance, one cost and one risk for each of the following scenarios:


Write It!


1. Your parents want to buy you a new laptop to help with your education.


2. You completed a household budget for your parents after learning how to do them in Unit 2. You notice there may be a deficit in December. What would you recommend?


3. Your aunt seeks your opinion on buying a new house and the best financial options to do so.


EXAM PREPARATION!


State each source of finance (under the correct term). Explain each of them using an example. Apply them to another unit.


74 P. 49


Go to page 49 in the activity book to practise more questions on terms of finance.


Examination Tip


Make sure to match the correct source of finance with the correct term.


STOP! WRITE IT!


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