A2 Different ways to pay Flashcards
what are advantages of using cash
-widely accepted
-makes budgeting easier
what are disadvantages of cash
-can be lost or stolen
-only appropriate for purchases up to a certain amount
-cannot be used online
what is a credit card?
Card customers can use to delay payments for goods and services by borrowing from the credit card provider.
what are advantages of credit cards?
-allows a period of credit thats interest free (a month)
-widely accepted
-loyalty schemes offered
-offers a degree of protection on purchases
-can be used online
-buy what you need when you need it
-pay for things in instalments
what are disadvantages of credit cards?
-interest charged if balance not paid off within the month
-can encourage customers to overspend or get into debt
-interest charged on cash withdrawals
-limit set on the amount of credit allowed
-missed payment will affect your credit score
what is a debit card?
use to pay for goods and services and deducted directly from a current account.
what are the advantages of debit cards?
-no need to use cash
-secure method of payment with low risk of theft
-widely accepted
-offers a degree of protection on purchases
-suitable for online transactions
-no debt
what are disadvantages of debit cards?
-need to have money in the account
-can overspend and end up in an overdraft
-if card is stolen people can spend your money using contactless
what is a cheque?
A written order to a bank to make a payment for a specific amount of money from one person’s account to another.
what are advantages of cheques?
-low risk, cheques can only be cashed by named payee
-no need to provide change, can be written as an exact amount
what are disadvantages of cheques?
-expensive if bank refuses to clear the cheque (it bounces) if payer does not have the funds
-time delay between writing the cheque and it being cashed could cause a consumer to go overdrawn
-viewed as old fashioned
-easy to make errors when writing cheques causing problems for both consumers and recipients.
what are advantages of contactless?
-secure method of payment
-allows payment up to £100
-quick and easy
what are disadvantages of contactless?
-limit for how much you can spend
-if card is stolen, theif can spend £100
what are advantages of mobile banking?
-convenient
-secure
what are disadvantages of mobile banking?
-features are still limited and does not offer all the functionality of internet banking
what is direct debit?
agreement made with a bank allowing a third party to withdraw monwy from an account on a set day to pay for goods or services recieved e.g. gas bill
what are the advantages of direct debit?
-easy way to make regular payments
-amount paid can vary to ensure the payment matches the amount required by the vendor
-quick and easy to set up
what are the disadvantages of direct debit?
-if payer makes a mistake its the payee responsibility to claim back the money
-payer determines amount paid each time making it difficult for the payer to plan and budget
what is a standing order?
an agreement made with a bank to transfer a fixed sum of money to a third party account on a set date on a regular basis e.g. pay £30 for a phone contract each month
what are advantages of a standing order?
-same amount paid each time making it easier for the payee to plan and budget
-easy to set up and cancel
-no need to remember to make regular payments
what are disadvantages of standing order?
-payments taken regardless of the customers balance leading to unplanned use of overdraft
-payments will continue to be made unless cancelled
what is electronic transfer?
payments transferred from one bank account to another
What are the advantages of electronic transfer?
-almost instantaneous
-provides a record of payment
-no additional costs incurred
-easy to use for one-off and more frequent transactions
what are the disadvantages of electronic transfer?
-risk of loss if the transfer is incorrectly set up
-not appropriate for face-to-face transactions
what are advantages of pre-paid cards?
-can set a budget which avoids overspending
-if lost or stolen loss is limited to the balance remaining
-effective way of controlling amount spent by children and where money is spent
-poor credit not a problem
what are disadvantages of pre-paid card?
-no protection if lost
-can require an initial fee to purchase or set up the cards
-cannot increase your credit rating
what is a charge card?
-similar to credit cards they allow customers to delay payments for goods
-only accepted by certain stores
-must pay off your card balance in full every month
-e.g. American Express
what are advantages of charge cards?
-reduces risk of running up debts
-allows a short period of credit
-avoids need to carry cash
-can offer additional perks
-no interest charged
-offer rewards and discount schemes
what are disadvantages of charge cards?
-must be paid in full each month
-often an annual fixed fee applied
-do not come with limits
-penalties for late payments
-need a high income and good credit score to qualify
what is the difference between a charge card and a credit card?
-credit cards come with a spending limit each billing period and allow you to pay off your expenses over time with a revolving balance.
-charge cards do not have a pre-set limit and require you to pay off your balance in full each month.
what is a store card?
credit cards that can only be used in certain stores
what are the advantages of store cards?
-allows a short period of credit that is interest free e.g. one month
-offer loyalty schemes, discounts, special promotions or priveleges
what are the disadvantages of a store card?
-Only accepted in issuing store or linked associations
-interest is paid on outstanding balances
-can encourage overspending and result in a consumer getting into debt
what is BACS?
(Bankers Automated Clearing Service)
- allows the transfer of payments directly from one bank account to another
- used by finance departments to pay staff wages and suppliers
what are the advantages of BACS?
-can be accessed in a number of ways including in a branch, over the telephone and online
-no additional costs
what are disadvantages of BACS?
-take three working days to clear
-have cut off times and only clear on working days
-limits set on the amount that can be transferred in any single transaction
what is CHAPS?
(Clearing House Automated Payment Systems)
-system allowing transfer of payments directly from one bank account to another
-usually used to make high value one-off payments
what are the advantages of CHAPS?
-transfers can be made the same day
-no limit on the amount that can be transferred in a single transaction
-safe and secure
what are the disadvantages of CHAPS?
-fixed charge per transaction
-payments are irreversible, therefore difficult to get money back if you make a mistake
