 Hey guys, it's MJ the students actually and we're gonna have another video on subject CT2 And this topic is medium-term financing and in this video I'm gonna be talking about higher purchase credit sale lease bank loan and What is the difference between all of them? So without further ado, let's get straight into it So let's just move these things out of the way as we deal with higher purchase first of all Now I purchased developed Because people wanted to buy awesome things like a car so let's say there's a beautiful car that you want to buy and Let's say it costs a hundred dollars and you do not have a hundred dollars to just spend on the car but what you can do is The car dealership guy says to you he says well look what we can do is we can give you the car now you can drive it around and You can pay monthly installments for the rest of the year and this sounds like a pretty good deal So let's illustrate this by bringing in our timeline and the car salesman will say something like Okay, make ten payments once a month and then the car is yours So now I don't have to you know try get a hundred dollars anywhere I just need to make these payments that come off my salary and then at the end of the year The car becomes legally mine So I get to drive the car from the beginning and when I make the final payment the car is legally mine if for some reason I Get fired from my job or are no longer can make the payments So we stop paying here the car then goes back to the dealership the dealership then takes the car They take the car away So if you default They come and they reclaim the car But it is a bit of a hassle to do that and it is a little bit unnecessary From their side of view. So what we'll see is they do charge a little bit more on the high purchases So if we see here ten times twelve is a hundred and twenty So if you can it's much better to or cheaper normally to buy the car Directly But if liquidity is an issue you can't spread out your payments But then they do contain an interest component and that's why it costs more So that is higher purchase Now higher purchase has got something very similar So yeah, so sorry, let me just put this here higher purchase ownership changes at the end Okay, that's that's the most important thing to remember Now let's say we have a credit sale Credit sale is going to be almost the same structure except legally ownership happens at the start so you purchase the good and Then if you default the seller has to go and sue you and they have to go in a whole default queue And the whole thing is quite a messy Ugly process So normally when you buy something on credit sale the price will be a little bit higher than higher purchase To you know just for the fact that there is this more uncertainty that you could default But the whole idea with the credit sale is That ownership changes at the start now what we can also get is Is we can get something known as a lease So a lease is interesting in the sense that you never get the car. The car never becomes legally yours But you still pay these payments and you get the right to use the car. So you renting the car and In this situation the payments would be a little bit less then because at the end of the time period the car returns to the original owner and They could then sell it on for a residual depending on depreciation and Warranty and all of those factors So with the lease we're going to be seeing no ownership change So that's the big difference with lease is that there's no ownership change But as we can see is that the cash flow structure very much stays the same The amounts that you'll be paying every month might change But the structure is very similar Now sometimes let's say you want to buy a car Let's say you on the second hand market and you're buying it from your friend And they don't know anything about credit sales higher purchase or lease agreements But you do not have the hundred dollars up front to buy the car what you do in that case well then You will get the bank to come help you out So you'll go to the bank and here's the bank They'll come and they will assist you and they will give you the hundred the hundred dollars They'll give that to you and then you'll give that to your friend They'll give you the car and then you pay the amounts Every month and if you don't pay if you make a if you default well the bank has got collateral on your asset so if you don't make a payment or then the car comes to the bank and this is known as repossession and That's kind of the main the main structures or the main differences. I want to show you is bank loan this collateral With the lease there's no ownership change Credit sale there's ownership change and higher purchase. There's also ownership change, but this time it's at the end Now before we just end off this video, I want to say the reason why this While we got all of these different ways of purchasing things is like this person didn't have the hundred dollars to purchase the car in the beginning And we call that having a lack of liquidity So he didn't have the amount up front in order to purchase. So these Financial, I don't know if can you call them technologies or innovations spread out the payment and Release the liquidity pressure on the buyer Now the exact amount of interest that you should pay needs to incorporate the time value of money a liquidity preference as well as a credit risk premium So Calculating what these interest rate payments should be or what these installment payments should be is quite a difficult task And it is one of the reasons why activities are involved in this Area of finance in the sense that we can well, we hope to a give the best Valuation and the best estimate so that it is fair for both the buyer and the seller Generally in these markets the installments have been a little bit heavy have been a little bit hard and So much so that regular regulation has actually stepped in to try to protect the buyers because when it comes to interest rates some people Can get confused and buyers have taken advantage of this But now I've been thinking okay These payments they made they done once a month once a month the payments are made can we maybe Squeeze those payments so that they done continuously and It's and what we paying a continuously Do I really have to deal with a bank in order to get my bank loan? In today's technology, you know, we've got Bitcoin Blockchain and all these various new technologies what we could do is almost tap into a loan from a group of people and they can provide the liquidity that I need in order to buy my car and Using the blockchain to you know, do all the background infrastructure This could actually become a possibility and like I said with a cryptocurrency You could almost get continuous payment streams so that instead of paying 10 rent at the end of every month You're paying save five cents every single second Now what we could be seeing with blockchain with Bitcoin is a whole evolution of medium-term financing and so that's why it is a fascinating subject to get into now and That's one thing you guys need to remember is while you're learning all this material It's not just oh, I need to learn this for the test But we're living in a time where technology is Evolving at such a rapid rate that you could be the next person to come up with a great idea that disrupts the banks and Changes the entire financial industry So that's why the theory is important because without the theory you can't make the innovation So I hope you guys enjoyed this video and let me know in the comment sections below If you have any great ideas on how to change the world. Cheers guys