Types of credits

Bank credits (loans): These are a type of credit whereby the lendor is a bank whereas the borrower is a individual, preferably one who is a client at the same bank. In this case, the bank forwards a loan to the borrower depending on 2 main things: first is the amount of money that the financial system is willing to release and secondly, the debtor’s ability to refund the forwarded amount.

Real estate credit: Loans forwarded by financial institutions to assist borrowers in the purchase of immovable property e.g. pieces of land, houses etc

Commerce credits: Credits of this nature are extended to borrowers who are willing to buy the same. The purchase and repayment terms are put down by the creditor.

Investment credits: Loans available to persons willing to put up projects that have been encouraged by the national government.

Consumer credit: These are debts a purchaser or consumer incurs so as to procure services or materials with a significantly lower sell-on value.

Public credit: Loans extended by citizens or any private body to the government.

Proposal

The recommendations for purchase are based on need and cost more than anything else. Sam and Judy should avoid as much as possible, making purchases that are wants rather than needs. So in their scenario, we would be inclined to view official wear as well as a car as needs and so should be prioritized, these two can be bought within the current year. The surplus should be funneled towards the payment of already existing loans such as student loan. Meanwhile the camera and the 52” T.V. can be bought the following year (after 1.3 years, see calculations).

For all of the above goods, the Consumer loan should be considered to make the purchases. This is for the evident reason that all the goods depreciate rapidly. 

Monthly cost estimate in the 1st year (car and business wear)

Gross monthly income (GMI): $71000/12= $5916.67

Less 40% of GMI                                     $(2366.67)

Net monthly income                                 $3550

Less monthly expenses:

Rent $400

Utilities $200

Students loan $300

Car insurance $225

Commuting costs $263

Food at home $300

Food and entertainment $300

Dry cleaning $40

Miscellaneous $400

                                                           ($2428) 

Monthly amount available to pay loan         $1122

Yearly amount $1122*12= $13464

To prioritize car loan to business wear loan we use a ratio i.e. $11000/$1500=7.3:1

Therefore if we take x as the monthly loan payments: 12(7.3x+x)=13464 thus x =13464/99.6=$135.18

Car loan=7.3*$135.18=$986.8 and business wear loan is $135.18

Budget Preparation

Item

Projected

Actual

Difference

Gross yearly income

$71000

$71000

Nil

Less yearly withholdings(40%)

($28400)

($28400)

Nil

Net Yearly income

$42600

$42600

Nil

Expenses

Rent

$4800

$4800

nil

Utilities

$2400

$2400

nil

Student loan

$3600

$3600

nil

Car insurance

$2700

$2700

nil

Commuting costs

$3156

$3156

nil

Food at home

$3600

$3600

nil

Food and entertainment

$3600

$3600

nil

Car loan

$11841.6

($11841.6)

Business wear loan

$1622.16

($1622.16)

Dry cleaning

$3156

$3156

Nil

Miscellaneous

$4800

$4800

Nil

Due to the extra loan payments (car and business wear) there is a credit of $13463.76

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