A2 Different ways to pay

Question 1

what are advantages of using cash

Answer 1

-widely accepted
-makes budgeting easier

Question 2

what are disadvantages of cash

Answer 2

-can be lost or stolen
-only appropriate for purchases up to a certain amount
-cannot be used online

Question 3

what is a credit card?

Answer 3

Card customers can use to delay payments for goods and services by borrowing from the credit card provider.

Question 4

what are advantages of credit cards?

Answer 4

-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

Question 5

what are disadvantages of credit cards?

Answer 5

-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

Question 6

what is a debit card?

Answer 6

use to pay for goods and services and deducted directly from a current account.

Question 7

what are the advantages of debit cards?

Answer 7

-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

Question 8

what are disadvantages of debit cards?

Answer 8

-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

Question 9

what is a cheque?

Answer 9

A written order to a bank to make a payment for a specific amount of money from one person’s account to another.

Question 10

what are advantages of cheques?

Answer 10

-low risk, cheques can only be cashed by named payee
-no need to provide change, can be written as an exact amount

Question 11

what are disadvantages of cheques?

Answer 11

-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.

Question 12

what are advantages of contactless?

Answer 12

-secure method of payment
-allows payment up to £100
-quick and easy

Question 13

what are disadvantages of contactless?

Answer 13

-limit for how much you can spend
-if card is stolen, theif can spend £100

Question 14

what are advantages of mobile banking?

Answer 14

-convenient
-secure

Question 15

what are disadvantages of mobile banking?

Answer 15

-features are still limited and does not offer all the functionality of internet banking

Question 16

what is direct debit?

Answer 16

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

Question 17

what are the advantages of direct debit?

Answer 17

-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

Question 18

what are the disadvantages of direct debit?

Answer 18

-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

Question 19

what is a standing order?

Answer 19

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

Question 20

what are advantages of a standing order?

Answer 20

-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

Question 21

what are disadvantages of standing order?

Answer 21

-payments taken regardless of the customers balance leading to unplanned use of overdraft
-payments will continue to be made unless cancelled

Question 22

what is electronic transfer?

Answer 22

payments transferred from one bank account to another

Question 23

What are the advantages of electronic transfer?

Answer 23

-almost instantaneous
-provides a record of payment
-no additional costs incurred
-easy to use for one-off and more frequent transactions

Question 24

what are the disadvantages of electronic transfer?

Answer 24

-risk of loss if the transfer is incorrectly set up
-not appropriate for face-to-face transactions

Question 25

what are advantages of pre-paid cards?

Answer 25

-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

Question 26

what are disadvantages of pre-paid card?

Answer 26

-no protection if lost
-can require an initial fee to purchase or set up the cards
-cannot increase your credit rating

Question 27

what is a charge card?

Answer 27

-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

Question 28

what are advantages of charge cards?

Answer 28

-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

Question 29

what are disadvantages of charge cards?

Answer 29

-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

Question 30

what is the difference between a charge card and a credit card?

Answer 30

-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.

Question 31

what is a store card?

Answer 31

credit cards that can only be used in certain stores

Question 32

what are the advantages of store cards?

Answer 32

-allows a short period of credit that is interest free e.g. one month
-offer loyalty schemes, discounts, special promotions or priveleges

Question 33

what are the disadvantages of a store card?

Answer 33

-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

Question 34

what is BACS?

Answer 34

(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

Question 35

what are the advantages of BACS?

Answer 35

-can be accessed in a number of ways including in a branch, over the telephone and online
-no additional costs

Question 36

what are disadvantages of BACS?

Answer 36

-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

Question 37

what is CHAPS?

Answer 37

(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

Question 38

what are the advantages of CHAPS?

Answer 38

-transfers can be made the same day
-no limit on the amount that can be transferred in a single transaction
-safe and secure

Question 39

what are the disadvantages of CHAPS?

Answer 39

-fixed charge per transaction
-payments are irreversible, therefore difficult to get money back if you make a mistake