Purchasing and Financing 2024

5. Lien
A lien is the right to hold somebody’s property until the debt is paid. A garage owner may
hold a client’s car if the client does not collect it after repairs. The creditor has the legal
right to sell the property to recover the money. But it is important to notice that the lien
does not relate to any other debts that the owner of the property may have with the
holder of the lien!
6. Bank guarantee
Where a credit institution assumes liability for a credit given by a third person, it is known
as a bank guarantee. The borrower remains the principal debtor, but the credit institution
is liable if the debts remain unpaid. In return for the guarantee the borrower pays the
bank a commission.
EXAMPLE:
You must decide whether you are going to accept a trade credit or use your overdraft
facility in the following case: You have to pay a supplier R10 000 that is due after 30 days.
Your overdraft interests’ rate is 15% per annum and you are offered a 3% cash discount if
you pay within 10 days.
Solution
Trade Credit: R10 000 due after 30 days
If you pay on day 10 you get the 3% discount and pay only R9 700 but have to use your
overdraft facility.
You will pay the following amount in interest:
R9 700 x 15% / 365 x 20 = R79.73
It is thus worth your while to use your Overdraft facility and take the discount because
you will save R300 – R79.73 = R220.27
GROUP ASSIGNMENT:
Why is it a bad idea to sign surety for a loan for an unemployed friend?
Why is it important to pay your monthly instalments as they fall due?
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