A4 - managing personal finance Flashcards
(21 cards)
different ways of borrowing (6)
overdraft
personal loan
mortgage
higher purchase
credit card
payday loan
overdraft
bank feature letting you spend more money than have in account up to limit
emergency cash withdrawal
short term
planed/unplanned
+ quick/immediate access
+ flexibility
- risk debt cycle
- high fees/interest
personal loan
money borrowed from bank/loan provider without needing to offer an asset for security
pay back fixed monthly instalments
+ fixed payment schedule
+ lower interest compared to credit card
- still high interest
- risk debt cycle
mortgage
mutual agreement between customer and lender where money lent at fixed/variable rate
fixed = more security
lender takes ownership
deposits of 10% of value of house
+ gives average person opportunity to get on property ladder
+ build property equality
- long term commitment
- consistant late repayments = repossessed property
higher purchase
arrangment where customer agrees to contract to acquire asset by paying installments
not owned until final payment
+ spread cost over time
+ immediate use assets
- depreciation
- higher total cost
- balloon payment
credit card
payment card allowing borrow money up to certain limit
no interest if paid by end month
+ convenient
+ flexible
- Charge to take cash out (3%)
- higher interest if not paid
- potential debt accumulation
payday loan
high interest
short term
covers urgent expenses
+ receive dividend
+ diversification
- may affect credit score
- very high interest
what are different ways of saving
individual savings account (ISA)
deposits + saving accounts
premium bonds
bonds + guilts
shares
pension
risk and reward of savings verses investment
individual savings account (ISA)
Save without paying tax on the interest or profits you earn
2 types: cash , stocks and shares
+ amount earn tax free (20k)
- limit on amount out in each year
deposits + saving accounts
SA = Easy instant access savings account without notice, variable interest that’s taxable
D = Set amount interest over set period of time, can’t make withdrawals during this time
premium bonds
Entered into prize draws each month of cash free tax
NSNI ran like lottery
+ cash them in when don’t want anymore
- don’t pay interest
shares
Get part ownership of the company
Receive payments or dividends per share based on the performance and profits
Share value can go up or down
pension
Long term saving scheme to help save for retirement
Employees lay into state pension through national insurance contributions
Workplace pensions put percentage of employees wage into scheme with contribution usually added from employer
insurance types
car
home + contents
life
travel
pet
health
Bonds and guilts
Fixed interest issued by company’s (bonds) and gov (gilts)
Lend government money then get return later
Can fall
Car insurance
Comprehensive, fire and theft, 3rd party
Legal requirement
+ Build up no claims bonus
+ protection against liability claims from other drivers
- expensive young drivers
- excess added in claim event
Home and contents insurance
Home = Covers cost of rebuilding and repairs
Contents = loss or damage personal possessions
+ security precautions can reduce premiums
- only covers rebuilding costs not market value
Life insurance and assurance
Insurance = pays lump sum in event of death
Assurance = mixture of life insurance and investment
+ can be used as collateral
- pre existing conditions may not be covered
Travel insurance
Provides cover for delays, cancellations, curtailments of trip
+ covers loss of personal possessions
+ covers emergency medical expenses
- may not cover full amount
Pet insurance
+ vet bills can be expensive
- vaccinations not covered
Health insurance
+ Covers some or all private medical costs
+ can choose illness type and treatment you want to cover
- pre existing conditions not covered
