Please answer both parta) When would you would use a Personal Loan? Why would you choose a Personal Loan over other methods of Credit?b) When would you would use a Mortgage? Why would you choose a Mortgage over other methods of Credit B. Cash CreditCash Credit is when you borrow money from a bank and paying it back later.1. Personal LoanA personal loan may be paid back in equal payments of principal and interestor in a single payment. The quicker it is paid off, the less interest that is paid.You can get a personal loan to buy a car, to buy furniture, to go on a trip, etc.You then use the borrowed amount as you wish. The amount, the rate and theconditions of reimbursement are fixed at the time of the contract. A personalloan is reimbursable in a predetermined time frame through monthly payments.Possible benefits of a personal loan:There are various options that allow you to obtain a loan to meet yourneeds.The loan is negotiable.You use the borrowed amounts as you wish.Potential risks of a personal loan:Since this loan is not linked to a specific purchase, if the goods aredefective or if there is any other problem (e.g. the goods are notdelivered), the loan must still be reimbursed.Can drive you into more debt than you are able to pay back if theloaned amount does not take into account your ability to repay.Increases your monthly payments.2. Student LoansStudent loans can be granted by governments or by financial institutions.Possible benefits of a student loan:Allows you to continue post-secondary studies.The government pays the interest on your loan while you are studyingfulltime. You repay the loan upon completion of your studies. The intereston your loan starts when you cease to be a full-time student.Potential risks of a student loan:At the end of your studies, you may havemay delay other plans, such as travelling or buying a house.deal with large debts. This 3. MortgageA mortgage is a long-term loan granted to an individual in order to buy ahome. The home itself is given as a guarantee for the loan. The house is used assecurity, which means that if payments are not made the bank may sell thehouse to cover payment of the loan.• Payments are Usually a combination of Principal, Interest, Tax (PIT)• Interest is charged on the outstanding balance at each payment datetherefore the amount of interest paid in the early payment is a very highpercentage of the payment.• As the principal is paid down, the interest portion of the paymentbecomes smaller. The loan is usually paid down over a period of 15-25years.• There are different types of mortgage loans, such as open or closed, thatoffer variable of fixed rates and various options concerning the term, thepayment frequency and the amortization period.Possible benefits of a mortgage:• Allows you to purchase a home, which would be impossible without aloan.• Offers favorable interest rates.Potential risks of a mortgage:• Monthly payments are sometimes high.Because it is a long-term purchase, a change in household income couldhave a negative effect on your ability to pay it back.• The home is given as a guarantee of the loan, meaning that in case ofnonpayment the home could be taken.Because of the length of the loan, you may end up paying back doublethe original price of the house.

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