@ Borrowing

Question 1

List all types of Borrowing

Answer 1

• Overdraft
• Hire purchase
• Credit Card
• Payday Loan
• Mortgage
• Personal Loan

Question 2

Overdraft

Answer 2

A short term loan which can be used to pay bills if you are short of cash

Question 3

Hire Purchase

Answer 3

Allows an individual to have use of an item immediately but pay for it in regular installments. The property is only owned by the individual when the final installment has been paid.

Question 4

Credit Card

Answer 4

Used to buy goods and services but may only spend up to the amount of the credit limit on your card. At the end of the month, you will receive a statement showing how much you owe.

Question 5

Payday Loan

Answer 5

A short-term source of finance that can help to bridge the gap between the present moment in time and receiving a wage

Question 6

Mortgage

Answer 6

A long-term loan to fund the purchase of assets. E.g Property and will be repaid over a long period (25 years)

Question 7

Personal Loan

Answer 7

Used to buy expensive items such as a car. You borrow a set amount of money which is repaid in regular installments over period of one to five years at a fixed rate of interest

Question 8

Ad of Overdraft

Answer 8

• Usually free to set up, only pay interest on the money you borrow
• Can be pre-arranged and used to meet short-term cash flow problems

Question 9

Dis of Overdraft

Answer 9

• If the overdraft has not been pre-arranged, the penalty charges are usually very high
• Can encourage overspending due to the ease at which these can be obtained

Question 10

Ad of Hire Purchase

Answer 10

• Allows you to buy an expensive item at an amount you can afford
• Credit is secured against the specific item being purchased

Question 11

Dis of Hire Purchase

Answer 11

• It is a fixed contract. If your circumstances change during this and repayments cannot be made, you could lose the asset
• Likely to pay more for the asset compared to using cash due to interest charged

Question 12

Ad of Credit Card

Answer 12

• Allows a period of interest-free credit (usually 1 month) providing the balance is repaid in full
• If you need to make a big purchase, a credit card lets you pay over several monthly installments

Question 13

Dis of Credit Card

Answer 13

• Can encourage individuals to overspend
• High-interest rates are charged if the balance is not cleared at the end of each month (Pay more than outstanding amount)

Question 14

Ad of Payday Loan

Answer 14

• A fast source of cash in a financial emergency

- Do not require a credit report and therefore eligibility for this type of loan is likely to be guaranteed

Question 15

Dis of Payday Loan

Answer 15

• The loan is for a short period only
• Involve both fees and high interest payments- the charges are significantly higher than with a standard bank loan (expensive way to borrow)

Question 16

Ad of Mortgage

Answer 16

• Enables an individual to spread cost of an expensive item over a long period of time
• Fixed or tracked mortgage rate can help make payments affordable

Question 17

Dis of Mortgage

Answer 17

• An increase in interest rates may affect your ability to pay back the mortgage
• If repayments are not made, the property can be repossessed

Question 18

Ad of Personal Loan

Answer 18

• Budgeting is easier- payment plan will be pre-agreed and involve regular set payments
• Useful when looking to purchase a specific item of medium to high value e.g car

Question 19

Dis of Personal Loan

Answer 19

• Likely to be an unsecured loan and therefore interest rates are going to be high
• Not suitable for everyone as a good credit rating and credit history is required to be eligible