Lesson 6 Flashcards
(19 cards)
What is overdraft
A facility to overspend on a current account
What are the advantages of overdraft
Only borrowed when required allowing flexibility
Only pay for the money borrowed
Quick and easy to arrange
What are the disadvantages of overdraft
The bank can call it in at any time
Interest can apply if the money if not payed in time
What are personal loans suitable for
It is suitable for buying more expensive items that will be paid over a longer period of time
What is a personal loan
A set amount of money provided to be repaid with interest over a period of time
What are the advantages of personal loans
Quick, easy and secure.
Fixed interest rates which allows individuals to budget.
Improved cash flow
What are the disadvantages of personal loans
Interest must be paid regardless of financial situation.
An individual normally provides security
What is hire purchase
Spreading the cost of a purchase over an pre-agreed period of time
What are the advantages of hire purchase
Immediate use of the purchased item.
Spreads cost over periods of time.
Fixed installments
What are the disadvantages of hire purchase
Additional costs applied.
If payments are not made, the item will be repossessed
What is a mortgage
A type of long-term loan you can use to help buy a house, flat or another type of property
How does a mortgage operate
You make payments each month for an agreed term. By the end of the term, youāll have paid off the full loan amount and its interest ā assuming you keep up with your repayments.
What are the advantages of a mortgage
Makes it possible to buy expensive items.
Spreads cost of an asset over long periods of time.
Changes can be made to find the best deals possible
What are the disadvantages of mortgage
Payments are not fixed.
Have to apply and may not be guaranteed a mortgage.
Normally requires a substantial deposit.
How much is the usual deposit amount for mortgages
20%
What is are payday loans
This is essentially a short-term high-cost loan
How do payday loans operate
This is a small amount of money being loaned out with a high interest rate applied with a small timeframe to repay
What are the advantages of payday loans
Solves short term cash flow problems.
Quick access to funds that people need immediately.
What are the disadvantages of payday loans
High interest rates.
Needs to be repaid rather quickly.
Can escalate out of control if not repaid quickly.
