REAA FNS40815_FNSCRD301_Assessment 1_ Answer

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FNS40815_ FNSCRD301 Assessment 1 Knowledge Document Owner: Released December 2021 Page 1 of 7 FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING FNSCRD301 Process applications for credit Assessment 1 - Knowledge

REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 2 of 7 Activity 1 Refer to your Learner Guide and the guide ‘Money Smart - Types of Credit’, located in the Additional Resources folder and respond to the following: Your supervisor has asked you to provide information to clients about different credit products. Compete the table below to demonstrate to your supervisor your understanding of credit products and their application. (List the features of credit products and their application requirements) Activity 1 Answer Type of Credit Explanation Advice that you should provide to the client about the product Car loan A car loan is for buying a new or used car – not for any other item. With a car loan, you borrow an amount of money to pay for your car. You have to repay it in an amount of time. You have to sign a credit Contract that tells you how much you have borrowed and how much you have to pay back every month. Car loans are nearly always fixed rate loans. This means you pay the Same interest rate throughout the loan. You also have to pay fees and charges. These are included in the total cost of your loan. Personal loans A personal loan is normally for something you need or something you want to do like fixing things in your home or taking a holiday. Your repayments are made within an amount of time. This is usually between 12 months and 5 years. Credit cards You use a credit card to buy things. You can only spend up to a certain amount of money on the card, which is called the credit limit. Fees add a lot to the cost of using a credit card. You can pay fees for: - annual accounts - rewards programs - late payments - exceeding your credit limit. Consolidation loan A consolidation loan is when you put all of your loans into one loan. With a consolidation loan, you are repaying all your debts in An advantage of a consolidation loan is that you only have to make one Repayment each month and you can get a lower interest rate.You might Not have to pay as many fees and

REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 3 of 7 the one loan, over a longer period of time. charges. Activity 2 Refer to your Learner Guide and the guide ‘Money Smart - Types of Credit’, located in the Additional Resources folder and respond to the following: You have asked the following questions to check a client’s level of understanding and knowledge regarding credit application processes:  What types of credit are available in Australia?  Do you know the costs associated with credit?  Do you know what a debt collector is? Now complete the table below by describing how you can assist the special needs and requirements of a client according to the level of knowledge and understanding they have demonstrated when answering the above questions. (Identify ways of obtaining and checking relevant information from applicants) Activity 2 Answer Level of Understanding Description of action or assistance that should be provided Level 1: No or a limited understanding If your client cannot answer any of your questions or can only answer them a bit, they have no or a limited understanding. You can help them understand more by showing them the photo story in their translated language to introduce the topic. You can also listen to the audio story. After using the photo and/or audio stories, see if your client has developed some understanding of the topic, by asking them to answer the questions again. At the end of the section, you can give your client the factsheet in their translated language to take home with them, so they can look at it later. Level 2: Some level of understanding If your client answers one or more of your questions, but not in a lot of detail, they have some level of understanding. You can show them the photo story to review the topic. You can also go through the Level 2 activities and stories in the kit as these are for clients with some level of understanding. At the end of the section, you can give your client the factsheet in their

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REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 4 of 7 translated language to take home with them, so they can look at it later. Level 3: A higher level of understanding If your client answers your questions in detail they have a higher level of understanding. For example, if you ask your client ‘What types of credit are there in Australia?’, and they can explain this, you do not need to show them the photo story. Instead, you can look at the more advanced activities in the kit with them,labelled as Level 3. At the end of the section, you can give your client the factsheet in their translated language to take home with them, so they can look at it later.

REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 5 of 7 Activity 3 Explain the key features of a financial services provider’s credit assessment policy based on the principles of responsible lending. (Explain key features of organisational policy and procedures that relate to credit assessments, security and customer service) Activity 3 Answer Principles of responsible lending Only lend to what customers can afford to pay  Perform more thorough check to determine the borrowers Market products responsibly  Provide clear information to potential borrowers such as terms and conditions, repayment terms, interest charges, penalties, right. Keeping customers informed and making reasonable effort to enquire about customer’s needs. Support customers facing financial difficulty. Financial support or services where needed.  Offering deferred payments, relief for people who have experience a natural disaster. Improve stakeholders financial literacy and capability.  Letting customers access to money management, budgeting savings, risk. Education materials to schools, community, small business. Ensuring accessibility of products and services to all. Meet responsible lending disclosure obligations  To give certain documents to consumers containing information they need in order to understand the credit activities provided by lenders/mortgage broker.

REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 6 of 7 Activity 4 The purpose of the National Credit Code is to provide protection for consumers who enter into credit contracts for personal purposes. How does the legislation identify whether a loan is for personal purposes, as opposed to business purposes? (Explain the key purpose of relevant credit legislation, statutory requirements and codes of practice, covering: consumer credit; personal property securities; privacy) Activity 4 Answer Within the AFSI there is a broad segmentation of customers which can be split into two general categories. The two broad types of customers are: 1. Consumer customers can also be referred as retail banking customers and are typically individuals who are borrowing for personal purposes. There can be exceptions to this broad definition, which will be dealt with at a later stage, but in this module, this will be our working definition. 2. The second type of customer is the Business Customer. It is noted that a business customer is a generic term that encompasses a diverse range of business customers, which start at the lower income levels of business banking and extend to commercial and corporate customers. The entities for business customers, as defined by the ATO are: a. Sole Traders b. Partnerships c. Trust- Typical structures being Discretionary/Unit Trust d. Private Companies with the standard terminology Pty Ltd e. Corporate companies which can be either listed on a recognised stock exchange or remain privately owned and operated.

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REAA FNS40815_FNSCRD301_Assessment 1_ Knowledge V1.0 REAA Released December 2021 Page 7 of 7 Activity 5 When taking out a business loan a lender will often want to secure the loan in the form of an asset. This security is intended to minimise risk exposure in the event the applicant is unable to repay the loan. Describe the main types of ‘security’ that may be required to obtain a small business loan. (Explain types of security) Activity 5 Answer Collateral, such as property or other assets, helps to secure payment if those assets are pledged to the creditor. Specific assets, such as accounts receivable or inventories can be pledged to creditors. Other forms of collateral include Letters of credit, Standby letters of credit, Guarantees by the firm or its parent, or Personal guarantees from the principals. The main types of security that may be required to obtain a small business loan may be in the form of a down payment, real estate, a term deposit with a proportion of the loan amount, other tangible assets such as cars, boats, planes etc.

REAA FNS40815_FNSCRD301_Assessment 1_ Answer

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