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Budgeting to repay a loan

 

Patrick and Karen decide they want to borrow money from the local credit union to pay for their car.

The credit union will give them a loan without them having to save first, on the condition that they meet with their money advisor based in their offices. They sit down with the money advisor and talk about how they will repay the loan, and their current budget.

Repaying the £1000 loan at 12.6% APR in £20 weekly installments would take them just over a year and cost them £63.78 in interest over that time.

Patrick tells the money advisor that:

• £250 comes into the household every week in wages and benefits.

• Rent costs them £300 a month, Council Tax costs them £90 a month.

• They pay £25 a week on utilities (like gas, water and electricity).

• They have a TV and pay £11.29 a month for the licence.

• Their current loan with the home credit company costs them £15 per week.

Can you:

• Use a budget sheet to work out how much other money, for clothes, leisure and other household goods they have left if they take on the loan.

• How much it would cost them to borrow the same amount of money from a typical home credit company and repay it over a year, in terms of amount per week and total amount

For a home credit company lending at 183.2% APR, the weekly cost of repayment of a £1000 loan over 56 weeks would be £30. The total cost of the loan would be £1680.

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