And if I need to take a loan?

A loan is when you receive money from a friend, a bank or other financial institution in exchange for future repayment of the principal, interest and often some additional fees. A loan is a type of debt.

One proverb says: "Never spend money before you have it." Spending money you don't have is the first step on the slippery slope of debt. But the world of lending is not as simple as it might seem at first glance. Of course, it's pretty impossible to buy everything from your income, so some debt (e.g. mortgage, student loans) is quite common and reasonable.

Now you have the opportunity to learn about loans the most important knowledge and skills. In this WebQuest, you will get acquainted with the basic terms of the world of loans, good and bad loans and various types of loans. You will learn how to decide if take or not take a loan in a concrete situation. We will add practical rules and pieces of advice for your financial health. Go for it!

  1. Repeat the basic terms of the world of loans. How do loans work?

  2. Learn to distinguish between good and bad debt.

  3. Discover which types of loans people use in which situations.

  4. Learn to use APR (Annual Percentage Rate).
  1. Repeat the basic terms of the world of loans. How do loans work?

    Watch the following videos and repeat the meaning of basic loan terms such as lenders, borrowers, principal, fixed and variable interest rates, Annual Percentage Rate (APR), credit score or debt trap.




    To test your knowledge, answer the following questions in your own words.

    Who is a lender, and who is a borrower?
    How would you explain the meaning of the term "principal amount of a loan"?
    How would you explain the meaning of the term "interest"?
    What is the difference between fixed and variable interest rates?
    What is the Annual Percentage Rate (APR) and why we use it?
    What is the debt trap?  

    You can also prepare a small financial quiz for your family members or friends and test their knowledge.

  2. Learn to distinguish between good and bad debt.

    Before you borrow money, it’s worth knowing the difference between good debt and bad debt. Some things are worth going into debt for, and others can bring you in big trouble. Learn in the following article what good debt is and what bad debt is and how to distinguish them. You can make some notes.

    ARTICLE - Good debt versus bad debt
    https://www.moneyadviceservice.org.uk/en/articles/good-debt-versus-bad-debt#what-is-good-debt

    You must still be careful that you don’t take on too much debt, even if it’s good debt. If you’re overloaded with debt, then it doesn’t matter whether the debt is good or bad, it still hurts your financial health. 

    Now use your notes and explain the difference between good and bad debt. Then try to be clear on the following questions.

    What big expenses await you in life? How much will they cost and how much will you borrow? How long will you probably repay these loans? Do you have any clever ideas on how to do it smartly?

    When considering borrowing money, ask yourself the following questions.

    Have I shopped around to get the best deal?
    Am I borrowing this money as cheaply as possible?
    Will I be able to cope should interest rates rise in the future?
    Will I comfortably be able to afford the monthly repayments?
    Will borrowing this money improve my finances in the long run?
    Do I understand the risks and what could happen if things go wrong?
    Do I understand all the terms and conditions associated with borrowing this money?

    If any of the answers are ‘no’, that debt is likely to be bad. If the debt won’t bring you future income or wealth but instead funds your current lifestyle, it’s likely bad debt.

  3. Discover which types of loans people use in which situations.

    All loans aren’t created equal. If you need to borrow money, first, you’ll want to decide which type of loan is right for your situation. There are many types of loans and banks are constantly inventing new ones. Read the following article and learn about eight basic types of loans.

    - Unsecured personal loans
    Secured personal loans
    Payday loans
    Title loans
    Pawn shop loans
    Payday alternative loans
    - Home equity loans
    - Credit card cash advances

    ARTICLE - 8 different types of loans you should know
    https://www.creditkarma.com/personal-loans/i/types-of-loans/

    Your knowledge does not have to be detailed and in-depth. Sometimes you just need to know the basics. Watch the following video.


    Think about the following questions.
    Is it a good idea to take a loan for buying a new car? What if I desire to possess a car because my friends have them? And what if I need a car to commute to well-paid work?

  4. APR is a tool on your part. Learn to use it.

    Some loan advertisements look amazing but always be sure to consider all your costs when choosing a loan offer. The APR is the best way to quickly compare your total yearly costs because it includes both the interest rate and fees.


    Ask family members or friends if they know what APR is and what interest is? Do they know the difference between these two numbers? 

    If you still want to learn more about life and loans, listen to the following talk by Patric Gill. It is definitely worth twenty minutes of your time.

    Are you struggling under the weight of debt? Maybe its student loans from your education or overdue credit card payments? Whatever debt you find yourself fighting, Patrick Gill shares time tested strategies that will help you pay it off faster and save money. Strategies that if you implement, will help you make debt a friend again.



After complete this WebQuest, I can:

Describe basic terms of the world of loans.
Explain how loans work.
Mention several types of loans that people use in various situations.
Define APR – Annual Percentage Rate.
Orientate oneself in the area of loans and negotiate with banks and other lenders.
Distinguish between good and bad debts.
Decide if take or not take a loan in a concrete situation.
Compare different loan offers according to APR.
Avoid the debt trap.
Keep the rules for financial health.
Handle with loans and debts.
Calculate annual loan cost according to Annual Percentage Rate (APR).

*If you answered NO to more than half of the statements, you should go through WebQuest again and acquire more knowledge and skills if you answered YES to almost all questions; congratulations on your great success!

The topic of this WebQuest was the world of loans. You have got familiar with the basic terms like lenders, borrowers, principal, fixed and variable interest rates, Annual Percentage Rate (APR), credit score or debt trap. Now you can distinguish between good and bad loans, and you know that various types of loans exist for different life situations. You have acquired new skills, and you are able to decide if you take a loan or not take a loan in a concrete case. Your financial health is secured with the knowledge and skills from this WebQuest.

In conclusion, we remind the essential six rules to avoid the debt trap.
Keep your expenses lower than your earnings.
- Spend on what you need instead of what you want.
- Pay off some part of your loans when you have spare monies.
- Avoid giving in to the temptation of borrowing money from the bank via credit card.
- Have a fixed monthly budget for your expenses.
- Create an emergency fund for seen and unseen situations.