A4 - Borrowing, Saving, Insurance

Question 1

Definition of hire purchase

Answer 1

Spread the cost of a purchase over a period of time

Question 2

Advantages of hire purchase

Answer 2

Immediate use of the item
Fixed regular payments monthly

Question 3

Disadvantages of hire purchase

Answer 3

You do not own it till the last purchase
Can be repossessed
More expensive overall than buying for cash

Question 4

Definition of mortgages

Answer 4

A loan to buy property

Question 5

Advantages of mortgages

Answer 5

Borrow a set amount for a set period
Spread the cost over a long period

Question 6

Disadvantages of mortgages

Answer 6

If repayments missed the property can be repossessed
Interest payments can rise
A deposit is needed

Question 7

Definition of pawn shops

Answer 7

Small amounts of credit, secured against moveable property, e.g laptop

Question 8

Advantages of pawn shops

Answer 8

Useful for people who cannot get normal credit
Not large debt

Question 9

Disadvantages of pawn shops

Answer 9

May lose an item if security is not repaid
Interest rates tend to be high

Question 10

Definition of overdraft

Answer 10

A facility to overspend on a current account up to an agreed sum

Question 11

Advantages of overdraft

Answer 11

Easy to arrange
Only pay interest if you use it
Helps with short term cash shortages

Question 12

Disadvantages of overdraft

Answer 12

Interest charges are high
Very high penalties for unauthorised overdraft
Bank can cancel overdraft

Question 13

Definition of personal loan

Answer 13

Borrow a set amount for a set period

Question 14

Advantages of personal loans

Answer 14

Monthly repayments easy to budget for
Suits large purchases

Question 15

Disadvantages of personal loan

Answer 15

You need good credit history
Interest payments add to total cost of loan

Question 16

Definition of credit card

Answer 16

A method of buying goods and services but paying for them later

Question 17

Advantages of credit card

Answer 17

No need to carry cash
Widely accepted in shops, online or phone purchases
No interest if you pay the balance owing in full each month

Question 18

Disadvantages of credit card

Answer 18

Credit limit
Interest rates are higher than a personal loan
Easy to get into debt

Question 19

Definition of payday loan

Answer 19

A loan until you get paid your wages at the end of the month

Question 20

Advantages of payday loan

Answer 20

Quick and easy to arrange
Solves immediate cashflow problems

Question 21

Disadvantages of payday loan

Answer 21

Very high interest rates
Easy to get into serious debt