Week 2: Banking & Debt

Question 1

Common Forms of Personal Borrowing

Answer 1

• Bank overdrafts
• Personal loans
• Student loans
• Mortgages
• Credit cards

Question 2

APR

Answer 2

• The annual percentage rate of a loan aims to measure the annual cost of borrowing by taking into account the interest charged and any unavoidable costs that borrower will have to meet.

Question 3

Personal APR

Answer 3

The rate you actually get

Question 4

Representative APR

Answer 4

Advertised rate

Question 5

Credit Rating

Answer 5

• Measure of how risky it might be to allow credit to specific individual

Question 6

Credit

Answer 6

• Arises when an individual is provided with cash, goods or services in advance of when the payment is required.

Question 7

Country court judgement

Answer 7

A court order obtained by a creditor stating what must be paid towards a debt

Question 8

APR takes into account (3)

Answer 8

1. Size, number and frequency of the payments
2. Any other unavoidable charges
3. Accounts for different compounding intervals

Question 9

RPI

Answer 9

• Measure of inflation based on the change in price of an average basket of goods and services that a household spends money on.

Question 10

Overdraft

Answer 10

• Arises when an individual withdraws funds from a bank or building society current account and causes the balance to fall below zero.

Question 11

Arranged overdraft

Answer 11

• Amount agreed by a bank for each customer which represents the amount by which their bank account is permitted to go overdrawn.

Question 12

Personal Loan

Answer 12

• Loan made by a bank or building society to an individual that is usually repayable over a number of years

Question 13

Hire Purchase

Answer 13

• Arrangement provides finance for the purchase of consumer goods, whereby payments are made over agreed term and ownership of the item usually only transfers when the final payment is made.

Question 14

Peer-to-peer lending

Answer 14

Allows individuals to borrow money from other individuals via a dedicated website. The interest rate charged depends on the riskiness of the borrower and is usually lower than high street banks and building societies can offer.

Question 15

Payday Loans

Answer 15

• Very high interest loans to individuals to enable them to meet their outgoing until their next payday at which point the loan has to be repaid