BAFS Compulsory Part
Basics of Personal Financial
Management
Topic C08:
Personal Financial Management
- Consumer Credit
Technology Education Section
Curriculum Development Institute
Education Bureau, HKSARG
April 2009
1
Discussion
z
z
Having been working for 3 years, your
cousin Angela has decided to study for a
degree on part-time basis. The first year
tuition fee of the programme is $30,000.
She does not have any savings and needs
to borrow a loan for the tuition fee.
Do you have any idea where and
what types of loans she can get?
Topic C08:
Consumer Credit
2
BAFS Compulsory Part
Learning and Teaching Example
Personal Loans Offered by
Banks
Personal instalment
loan
Revolving credit
facility
Personal overdraft
z
z
z
Topic C08:
Consumer Credit
3
BAFS Compulsory Part
Learning and Teaching Example
What is a personal instalment
loan?
z
A personal instalment loan is a type of
unsecured loan to be repaid in fixed
instalments.
Topic C08:
Consumer Credit
4
BAFS Compulsory Part
Learning and Teaching Example
Indicative Terms of Personal
instalment Loan
Loan Amount
($)
Monthly
Flat
Interest
Rate
Monthly instalment Amount (For Loan Amount of $1,000)
(Annualised Percentage Rate)
6 months
12 months
24 months
36 months
48 months
5,000-14,999
0.75
175.04
18.41%
91.75
19.71%
50.15
20.11%
36.34
19.99%
29.47
19.77%
15,000-49,999
0.65
174.04
16.07%
90.74
17.23%
49.13
17.63%
35.31
17.58%
28.43
17.42%
50,000-199,999
0.55
173.03
13.77%
89.73
14.78%
48.11
15.17%
34.28
15.16%
27.39
15.17%
0.38
171.32
9.93%
88.04
10.68%
46.38
11.02%
32.53
11.07%
25.62
11.06%
0.25
170.02
7.07%
86.70
7.61%
45.05
7.88%
31.19
7.95%
24.27
7.96%
200,000499,999
500,000 or
above
Topic C08:
Consumer Credit
Source: www.hangseng.com (March 2008)
5
BAFS Compulsory Part
Learning and Teaching Example
What is a revolving credit
facility?
z
z
z
A revolving credit allows a borrower to use
as much of the credit available and only
pay interest on the amount of loan drawn.
No fixed repayment schedule, normally
with a minimum monthly repayment,
normally 2 to 3% of outstanding loan
balance.
Credit limit is restored every time when
payment is made without re-applying.
Topic C08:
Consumer Credit
6
BAFS Compulsory Part
Learning and Teaching Example
Revolving credit limit:
• Up to HK$600,000; or
• Four times monthly salary
(whichever is lower)
Minimum monthly
repayment:
• 3% of outstanding loan
balance; or
• $50 (whichever is higher)
No withdrawal or handling fees.
Interest rate = 16% p.a.
(APR = 17.27%)
Topic C08:
Consumer Credit
7
BAFS Compulsory Part
Learning and Teaching Example
What is a personal overdraft?
z
z
z
z
A personal overdraft provides borrowers a
credit line where cash may be withdrawn
any time using cheques or other methods
of transfer.
Borrowers may repay the money any time.
Interest charged on daily basis at the Best
Lending Rate plus a margin.
An annual fee is charged.
Topic C08:
Consumer Credit
8
BAFS Compulsory Part
Learning and Teaching Example
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Topic C08:
Consumer Credit
9
BAFS Compulsory Part
Learning and Teaching Example
Activity 1:
Case Study
z
z
Form groups of four or five.
Read the case of Angela’s Study Loan
carefully and answer the question on
Student Worksheet p.2.
Topic C08:
Consumer Credit
10
BAFS Compulsory Part
Learning and Teaching Example
Do you know?
z
What are the factors
that banks will
consider when
granting credit or
loans to customers?
Topic C08:
Consumer Credit
11
BAFS Compulsory Part
Learning and Teaching Example
Activity 2:
To Lend or Not to Lend?
z
Read the five given
scenarios carefully and
decide whether you are
willing to lend money to
the people concerned
in each case.
Topic C08:
Consumer Credit
12
BAFS Compulsory Part
Learning and Teaching Example
The 4 Cs of Credit
z
z
z
z
Capacity
Character
Capital
Collateral
Topic C08:
Consumer Credit
13
BAFS Compulsory Part
Learning and Teaching Example
Buying a Property with
Mortgage
Topic C08:
Consumer Credit
14
BAFS Compulsory Part
Learning and Teaching Example
Mortgage Loan
z
z
A loan that is secured by real property.
If the borrower fails to repay the loan, the
lender may foreclose or seize the property.
Topic C08:
Consumer Credit
15
BAFS Compulsory Part
Learning and Teaching Example
Main Features of Mortgage
Loan
z
z
z
z
Topic C08:
Consumer Credit
Loan-to-value ratio
Term to maturity
Interest rate
Repayment
16
BAFS Compulsory Part
Learning and Teaching Example
Activity 3: Payment Flows of a
Credit Card Transaction
z
z
Brian has just used his CCA credit card
issued by Biz Bank to purchase a $3,000
mobile phone from MP Shop.
Do you have any idea of the payment
flows behind this transaction?
Topic C08:
Consumer Credit
17
BAFS Compulsory Part
Learning and Teaching Example
Activity 3: Payment Flows of a
Credit Card Transaction
1-A
Brian
9-E
8-C
3-D
5-B
Biz
Bank
Topic C08:
Consumer Credit
MP
Shop
2-G
4-I
MP Shop’s
Bank
CCA
6-F
7-H
18
BAFS Compulsory Part
Learning and Teaching Example
Activity 4:
Matching Game
z
Link the terms with their correct meanings.
Topic C08:
Consumer Credit
19
BAFS Compulsory Part
Learning and Teaching Example
Activity 4:
Matching Game
Annual
Fee
A fee charged by card issuers for the use of credit card.
Cash
Advance
Getting cash from the credit card instead of using it for
purchase.
Credit
Limit
The maximum amount of purchase and/or cash advance a
credit card holder may be used on the credit card.
Finance
Charge
The amount of interest charged on unsettled credit card
balance for the billing period.
Grace
Period
The period of time allowed for credit card holders to settle
the account without penalised for a finance charge.
Minimum
payment
The minimum amount of the balance a credit card holder is
required to pay for the billing period in order to maintain the
account in good standing.
Topic C08:
Consumer Credit
20
BAFS Compulsory Part
Learning and Teaching Example
Activity 5:
Use Credit Card Wisely
z
How long would it take for Brian to clear
his credit card balance if he only pays the
minimum every month?
Topic C08:
Consumer Credit
21
BAFS Compulsory Part
Learning and Teaching Example
Activity 5:
Use Credit Card Wisely
Month
Balance
Interest Accrued
End of
Brought
During
Month
Forward
the Month
Balance
Monthly Payment
1
3,000.00
2
2,850.00
49.88
2,899.88
144.99
3
2,754.88
48.21
2,803.09
140.15
4
2,662.94
46.60
2,709.54
135.48
5
2,574.06
45.05
2,619.11
130.96
6
2,488.15
43.54
2,531.69
126.58
7
2,405.11
42.09
2,447.20
122.36
8
2,324.84
40.68
2,365.52
118.28
9
2,247.25
39.33
2,286.57
114.33
10
2,172.25
38.01
2,210.26
110.51
11
2,099.75
36.75
2,136.49
106.82
12
2,029.67
35.52
2,065.19
103.26
Topic C08:
Consumer Credit
150.00
22
BAFS Compulsory Part
Learning and Teaching Example
Use Credit Card Wisely
z
Benefits
z
z
z
z
Convenience
Free credit for a period of time
Buy now pay later
Costs
z
z
z
Very high interest charge
Easy to be over-used
High level of theft and fraud
Topic C08:
Consumer Credit
23
BAFS Compulsory Part
Learning and Teaching Example
Personal Loan and Personal
Financial Management
Before raising a loan, consider the
following factors seriously:
• Never engage in a loan with monthly loan
repayment higher than your monthly
surplus (i.e. total income – expenses)
• Think carefully before raising a loan –
Monthly loan repayment should be kept
below 1/3 of monthly surplus.
Topic C08:
Consumer Credit
24
BAFS Compulsory Part
Learning and Teaching Example
What to do if becoming insolvent unable to meet the loan repayment
1. Never raise another high-interest loan to
meet the repayment
2. Restructuring of debts
3. Settling debts with collateral
4. Going bankrupt
5. The most important thing is …
Topic C08:
Consumer Credit
25
BAFS Compulsory Part
Learning and Teaching Example
What to do if becoming insolvent unable to meet the loan repayment
Reflect on your attitude
and mode of spending !
Topic C08:
Consumer Credit
26
BAFS Compulsory Part
Learning and Teaching Example
The End
Topic C08:
Consumer Credit
27
BAFS Compulsory Part
Learning and Teaching Example