At some point in our lives most people will have a need to borrow money. Individuals and families may need to borrow money for major purchases such as a house or a car. Some people also borrow money to purchase consumer items such as electrical goods and holidays. Borrowing money to finance consumer purchases is not a good idea as these items do not hold their value. If you got into financial difficulty and had to sell the item to repay the loan, you would not be able to cover the cost of the loan.
The main lenders of money include:
- Banks – provide savings accounts as well as mortgages, personal loans, credit cards, overdrafts. Eg. Westpac, Bendigo Bank, Commonwealth Bank
- Building Societies – mainly lend money for long-term loans to purchase land and/or new or existing homes. They also offer a range of savings and transaction accounts. Eg. IMB, Newcastle Permanent
- Credit Unions – similar to banks but usually set up to service the needs of a particular group of members. Eg. Ed Credit, MECU
- Finance Companies – personal loans, consumer credit contracts, commercial hire purchase. Eg. GE Finance
Interest: the price of money
Interest is the cost of borrowed money. The amount of interest paid on a loan depends on the interest rate per annum, the length of the loan and the amount borrowed. Some loans also have other fees and charges such as application fees and monthly maintenance fees.