Unit 3 - A4 - Ms Powell Flashcards
What are the different types of borrowing?
- Overdraft
- Personal loans
- Hire purchase
- Mortgages
- Credit cards
- Payday loans
What is Overdraft?
A short-term loan which can be used to pay bills if you are short of cash. You arrange with the bank to borrow money up to an agreed amount when the balance on your current account reaches zero
What are the advantages of Overdraft?
-Usually free to set up. You only pay interest on the money you borrow
What are the disadvantages of Overdraft?
-Interest is high and you will be charged a fee to use your overdraft. If you go over the limit or have an unarranged overdraft, there will be penalty charges
What are Personal Loans?
Loans that can be used to buy expensive items, such as household goods or a car. You borrow a fixed amount and pay it back in set monthly instalments usually over a period of one to five years, at a fixed rate of interest.
What are the advantages of Personal Loans?
-Monthly instalments allow you to plan your expenditure
What are the disadvantages of Personal Loans?
-There may be arrangement fees, which can add to the cost. If you fail to make payments on a secured loan, you may lose the asset it is secured against.
What is Hire Purchase?
This is usually used to buy a car. You put down a deposit, then pay monthly instalments over a period of one to five years. During the payment period, you hire the car; once the instalments are paid, you own the car.
What are the advantages of Hire Purchase?
-This allows you to buy an expensive item at an amount you can afford.
What are the disadvantages of Hire Purchase?
-While you are paying you cannot sell the care due to not owning it. If you fall behind with payments, the lender may repossess the car.
What is a Mortgage?
This is usually used to buy a car. You put down a deposit, then pay monthly instalments over a period of one to five years. During the payment period, you hire the car; once the instalments are paid, you own the car.
What are the advantages of Mortgages?
-This allows you to buy an expensive item at an amount you can afford.
What are the disadvantages of Mortgages?
-An increase in interest rates may affect your ability to pay back the mortgage. The property is used as security for the loan. If repayments are not made, the property can be repossessed.
What are Credit Cards?
Cards you can use this to buy goods and services in shops, online, by post and on the phone. You may spend up to the amount of the credit limit on your card. At the end of each month, you will receive a statement showing how much you owe.
What are the advantages of Credit Cards?
-If you pay the full amount each month, you will pay no interest.
What are the disadvantages of Credit Cards?
-If you pay the minimum amount shown on the statement, you will be charged interest on the outstanding amount. Interest rates are higher than a personal loan.
What are Payday Loans?
This is a short-term loan, usually for small amounts, often when people need cash to pay bills between paydays. A fee is charged.
What are the advantages of Payday Loans?
-Can help with cash-flow problems.
What are the disadvantages of Payday Loans?
-Very expensive way to borrow.
What are the different types of Saving and Investments?
- Individual savings accounts (ISAs)
- Deposit and savings -accounts
- Premium bonds
- Bonds and gilts
- Shares
- Pensions
What are the 4 types of ISA?
- Cash ISA: a savings account where interest paid tax-free
- Stocks and shares ISA: fund are invested in shares or bonds, and profits/returns earned are tax-free.
- Innovative finance ISA: Interest is earned from lending money to other people or companies.
- Help to buy ISA: launched in 2015 for first time-buyers to help them save to buy property
What are the advantages of ISA’s?
- No Tax on Interest Earned
- Easy to Open and Access
- Secured and FDIC-Insured
- Cash ISAs are less risky than stocks and shares ISAs
What are the disadvantages of ISA’s?
- Limit to how much you can put in a ISA a year.
- May need to give a notice if you wish to make a withdrawal
- Saving Withdrawal Federal Limits
- Stocks and shares ISA could result in financial losses.
- Stocks and shares charge a management fee
What are Deposit and Savings accounts?
Asavings accountis adeposit accountheld at a retailbankthat pays interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). Theseaccountslet customers set aside a portion of their liquid assets while earning a monetary return.
