Task Overview

A friend has approached you wanting some advice on comparing the total cost and time required to save or take out a loan for funding an overseas trip to be taken in a gap year.

They believe, they would need between $10,000 and $20,000. They need you to provide them with as much information as possible to assist them in making a decision between saving or taking out a loan.

You need to investigate the kind of information that is available on the internet for them to access. You should cover at least three sites in detail. You will then do a report on your investigation for your friend.

Your Task

Part 1: Important Terms Summary (CT1)

You quickly realise that there are some important terms that your friend will need to understand when deciding on a loan or savings account. Some terms you need to consider are listed below, but if you find other terms that are important include them in your Important Terms Summary. Provide a brief explanation for your friend of what each of these termsmean, and why they are important to know when considering a personal loan or savings account.

1. Fixed rate Or Variable rate
2. Secured loan Or Unsecured loan
3. Fixed repayments Or Additional repayments
4. Term deposits or Savings account

Part 2: Make a prediction about which may be better: to save or take a loan (which type) (CT1 & RC4,5)

From your knowledge of the different types of loans and savings accounts, predict which will provide your friend with the cheapest loan or the best saving account option to organize the money required for their gap year. You should discuss the specific savings accounts or loan types.

Also consider 'Advantages and disadvantages' of taking a loan vs savings account.

Part 3: Select the amount of money they require and period of time (to save or repay the loan) (CT1)

Select the amount of money and time frame your friend would require to either save or repay the loan.

Get it approved by your teacher.

Part 4: Information and mathematical calculations

1. You will need to investigate and gatherinformation about any costs associated with the savings account or loans beyond the regular repayments on the loan (e.g. Loan Establishment fees, PersonalProperties Securities Registration etc). (CT3)
2. Mathematical calculations for at least four different loan/ savings scenarios

Scenario 1 & 2: Savings

Investigate how much it will cost and the time it takes

Scenario 3 & 4: Borrowing - Personal Loan

Investigate the total cost of the loan in 2 different loan scenarios

1. the total cost of the loan or total cost of savings
2. the total interest

that your friend will need to pay or earn based on the pathway they choose and compare the two. Full calculations should be shown even if the loan calculator / savings account determines

• the cost of the loan, the total interest charged for you and length of the loan (RC2,3)
• Amount saved, the total interest earned or paid and the length of the time

Things you should consider in your calculation scenarios are:

• Timing of the repayments (weekly, fortnightly, monthly)/ timing of interest
• The type of loan (secured, variable rate, fixed rate)/ the type of account (savings/ term deposit)
• The length of the loan /length of time for savings
• Additional fees and charges.

1. Make a recommendation about which of the loan scenarios or savings scenarios you investigated and your friend should consider when making their final choice. Discuss any assumptions you have made in making this recommendation or any limitations to the information you could access that may affect the reasonableness of your recommendation. (RC2,3)

Part 5: Conclusion (RC1,4,&5)

Drawing on the information and mathematical calculation summaries of the loans/savings available that you have investigated and recommend the most appropriate loan or savings account for your friend to take out.Is the loan and saving account that you predicted in Part 2 the best option for your friend? Why? Why not?

Your report on the mathematical investigation should include the following:

• an introduction outlining the task
• the responses for Part 1 through to Part 4
• Part 5 conclusions in the context of the problem
• a bibliography and appendices, as appropriate.