Question

Alwyn is a self-employed courier and uses her motorbike to do her deliveries. Her bike has broken down and she’s been told she’d be better off buying a new one than repairing it. She has no emergency fund, a small overdraft with her bank, and a credit card that she pays off in full each month. What factors should she consider when deciding which borrowing product to use to pay for her new bike?

A) Interest rates
B) Credit limit
C) Repayment terms
D) All of the above

Answer 1

Alwyn should consider interest rates, credit limit, and repayment terms when deciding on a borrowing product to finance her new motorbike. A wise choice will depend on the cost of borrowing, the sufficiency of funds available, and manageable repayment terms aligned with her income.

Step-by-step explanation:

When Alwyn considers which borrowing product to use for purchasing a new motorbike, there are several factors that she should take into account to make a wise financial decision. These include:

• Interest rates: This is the cost of borrowing money. Alwyn should look for the option that will cost her the least in interest over the life of the loan.
• Credit limit: The maximum amount that a lender is willing to provide. She needs to ensure that the credit limit is sufficient to cover the cost of the new bike.
• Repayment terms: These outline how often and how much Alwyn will need to pay back. She should aim for terms that are manageable and align with her cash flow to avoid potential financial strain.

Choosing the right borrowing option requires a careful examination of the terms and conditions of each potential financial product. Misjudging the ability to repay can lead to severe consequences, like the seizure of assets if collateral is involved, or damage to one's credit rating. An informed decision on loans and interest, auto loans, and insurance policies is crucial for financial stability.