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Choosing to Borrow Money

Mr Tarn

GCSE ECONOMICS: UNIT 11

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Aims of today’s lesson …

• Understand why people borrow

• Understand methods of borrowing money

• Understand the impact of changing interest rates

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How do you feel about borrowing?

• Lets see how other people view borrowing….

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What would you borrow money for?

• Lets see what other people would borrow money to buy….

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Case Study: Why Borrow Money

• There are times in our lives when we need to buy something but may not have the cash to pay for it there and then

• At times like that we may decide to borrow the money

• Meet Becky who is hoping to buy

a car

• You are going to help her consider her options

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The impact of interest rates on Borrowing/saving money…

• The bank’s interest rate is the PRICE or COST of borrowing money AND the REWARD for saving money

For example you might borrow £1,000 from a bank…

…however, they will not give you the money for free you will have to repay the £1,000 plus interest

If you put money into a bank you will gain interest as a ‘thank you’ for saving your money with them

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The impact of changing interest rates on Borrowing/saving money…

• Banks and building societies regularly change their interest rates

• A change will have a major impact upon consumers, savers, borrowers, homeowners and businesses

Q. What would be the impact on homeowners who have a mortgage if the interest rate were to increase?

A. If they have a variable rate mortgage their repayments with change directly with the interest rate set by the bank; therefore a rise in interest rates will increase repayments, meaning they have less disposable income!

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Over to you...

• Open and compete the document called...

“Choosing to borrow money”