H2: Summary of the Article – Key Points
1. Capacity refers to the borrower’s ability to repay a loan, while capital refers to the borrower’s assets that could be used to repay credit debts if income is unavailable.
2. Collateral is the property pledged to assure repayment of a loan.
3. When your earnings exceed your expenses, you have the capacity to take on debt. Credit cardholders can withhold payment if there is a problem with a purchase, and carrying a credit card is riskier than carrying cash.
4. Loan and debt are often used interchangeably, but there is a small difference. A loan is money borrowed from a lender, while debt is money raised through the issuance of bonds or debentures.
5. Assets are possessions that have monetary value, such as cash, stocks, bonds, real estate, and personal belongings.
6. Owner’s equity or net worth is the amount of ownership in a business after subtracting liabilities from assets.
7. Pledged property refers to an asset used by a lender to secure a debt or loan, including cash, stocks, bonds, and other equity or securities.
8. A pledged asset line (PAL) can be helpful in managing interest-related finances, but it may not be suitable for all financial needs.
Strong:
1. What term refers to the borrower’s assets or net worth?
Answer: Capacity refers to the borrower’s ability to repay a loan. Capital refers to the borrower’s assets. Lenders want to know if the borrower’s assets could be used to repay credit debts if income is unavailable.
2. What is a property pledged to assure repayment of a loan called?
Answer: Collateral – Property pledged to assure repayment of debt.
3. When your earnings exceed your expenses, what capacity do you have?
Answer: When your earnings exceed your expenses, you have the capacity to take on debt. Payments on a credit account include both principal and interest. If there is a problem with a purchase, credit cardholders can withhold payment until it is resolved. Carrying a credit card is much more dangerous than carrying cash.
4. What is the difference between a loan and a debt?
Answer: Loan and debt are terms often used interchangeably, but there is a small difference. A loan is money borrowed from a lender. On the other hand, debt is the money raised through the issuance of bonds or debentures.
5. What is a possession that has monetary value?
Answer: Asset – Any possession that has value in an exchange. For example, cash, stocks, bonds, real estate, and personal possessions.
6. What is owners equity or net worth?
Answer: Owner’s equity (also referred to as net worth, equity, or net assets) is the amount of ownership you have in your business after subtracting your liabilities from your assets. This shows you how much capital your business has available for activities like investing.
7. What does pledged property mean?
Answer: A pledged asset is an asset that is used by a lender to secure a debt or loan and can include cash, stocks, bonds, and other equity or securities. It is collateral held by a lender in return for lending funds.
8. Is a pledged asset line a good idea?
Answer: While a PAL can be a helpful tool in managing interest-related finances, some areas of finance are off-limits. For example, an investor cannot use a pledged asset line to purchase more securities.
What term refers to the borrower’s assets or net worth
Capacity refers to the borrower's ability to repay a loan. Capital refers to the borrower's assets. The lenders want to know if the borrower's assets could be used to repay credit debts if income is unavailable.
What is a property pledged to assure repayment of a loan called
Collateral – Property pledged to assure repayment of debt.
CachedSimilar
When your earnings exceed your expenses you have the capacity to take on debt
When your earnings exceed your expenses, you have the capacity to take on debt. Payments on a credit account include both principal and interest. If there is a problem with a purchase, credit cardholders can withhold payment until it is resolved. Carrying a credit card is much more dangerous than carrying cash.
What is the difference between a loan and a debt
Loan and debt are terms often used interchangeably due to the reason that they both primarily mean borrowing money. However, there is a small difference between the two. A loan is money borrowed from a lender. On the other hand, debt is the money raised through the issuance of bonds or debentures.
What is a possession that has monetary value
Asset – Any possession that has value in an exchange. For example, cash, stocks, bonds, real estate and personal possessions. Bank – A for-profit company that is owned by its stockholders and provides saving and checking accounts and other financial services to its customers.
What is owners equity or net worth
Owner's equity (also referred to as net worth, equity, or net assets) is the amount of ownership you have in your business after subtracting your liabilities from your assets. This shows you how much capital your business has available for activities like investing.
What does pledged property mean
A pledged asset is an asset that is used by a lender to secure a debt or loan and can include cash, stocks, bonds, and other equity or securities. A pledged asset is collateral held by a lender in return for lending funds.
Is a pledged asset line a good idea
While a PAL can be a helpful tool in managing interest-related finances, some areas of finance are off-limit. For example, an investor cannot use a pledged asset line to purchase more securities. This would be dangerous for the lending institution.
What is debt overload
It's when you use the money you were going to pay one bill with to pay another, and then hoping you can pay the original bill later. This will only put off the past due letter and collection calls for so long.
What does it mean if cost of equity is higher than cost of debt
Debt is cheaper, but the company must pay it back. Equity does not need to be repaid, but it generally costs more than debt capital due to the tax advantages of interest payments. Since the cost of equity is higher than debt, it generally provides a higher rate of return.
What is the main difference between debt and equity
With debt finance you're required to repay the money plus interest over a set period of time, typically in monthly instalments. Equity finance, on the other hand, carries no repayment obligation, so more money can be channelled into growing your business.
What is the difference between debt and equity
Debt involves borrowing money directly, whereas equity means selling a stake in your company in the hopes of securing financial backing. Both have pros and cons, and many businesses choose to use a combination of the two financing solutions.
What is the monetary value of a property called
Assessed value is the dollar value assigned to a home or other piece of real estate for property tax purposes. It takes into consideration comparable home sales, location, and other factors.
What is everything a person owns that has a cash value
Personal assets are things of present or future value owned by an individual or household. Common examples of personal assets include: Cash and cash equivalents, certificates of deposit, checking, and savings accounts, money market accounts, physical cash, Treasury bills.
What is the main difference between assets and owners equity
Assets are the total of your cash, the items that you have purchased, and any money that your customers owe you. Liabilities are the total amount of money that you owe to creditors. Owner's equity, net worth, or capital is the total value of assets that you own minus your total liabilities.
What is the difference between owner’s equity and capital
Invested amount of funds (capital) may cover all expenses of the business or some part of it. Equity represents the company's net worth, that is Total Assets less Total Liabilities.
What does hypothecated property mean
Hypothecate means to pledge something as security for a loan, without the actual delivery of the item pledged. For example, a car may be collateral for a car loan, although possession remains with the borrower.
What happens if you pledge property
A pledged asset is an asset that is used by a lender to secure a debt or loan and can include cash, stocks, bonds, and other equity or securities. A pledged asset is collateral held by a lender in return for lending funds.
What are the disadvantages of pledge fund
A disadvantage of pledging shares is the risk associated with it. If the borrower defaults on the loan where shares are pledged as collateral, the lender may sell the shares in the market to recover the loan amount.
What is a high debt burden
A debt burden is a large amount of money that one country or organization owes to another and which they find very difficult to repay. … the massive debt burden of these countries.
How much debt is considered crippling
You're likely to hit your debt capacity when you struggle to make monthly payments. How much debt is a lot The Consumer Financial Protection Bureau recommends you keep your debt-to-income ratio below 43%. Statistically, people with debts exceeding 43 percent often have trouble making monthly payments.
Is a high cost of equity bad
The cost of equity is the return that investors expect on their investment. If the cost of debt is higher, it could indicate that the company is in a poor credit position as it has had to agree to high interest on its debts in order to secure financing.
Which is better equity or debt
Equity fund returns generally offer higher long-term returns than debt funds. Debt fund returns tend to be low or moderate as compared to equity funds.
What does it mean if equity is higher than debt
The debt-to-equity (D/E) ratio is a metric that provides insight into a company's use of debt. In general, a company with a high D/E ratio is considered a higher risk to lenders and investors because it suggests that the company is financing a significant amount of its potential growth through borrowing.
Is it better to have more equity than debt
Equity financing may be less risky than debt financing because you don't have a loan to repay or collateral at stake. Debt also requires regular repayments, which can hurt your company's cash flow and its ability to grow.
