A4 - Borrowing, Saving, Insurance Flashcards
Definition of hire purchase
Spread the cost of a purchase over a period of time
Advantages of hire purchase
Immediate use of the item
Fixed regular payments monthly
Disadvantages of hire purchase
You do not own it till the last purchase
Can be repossessed
More expensive overall than buying for cash
Definition of mortgages
A loan to buy property
Advantages of mortgages
Borrow a set amount for a set period
Spread the cost over a long period
Disadvantages of mortgages
If repayments missed the property can be repossessed
Interest payments can rise
A deposit is needed
Definition of pawn shops
Small amounts of credit, secured against moveable property, e.g laptop
Advantages of pawn shops
Useful for people who cannot get normal credit
Not large debt
Disadvantages of pawn shops
May lose an item if security is not repaid
Interest rates tend to be high
Definition of overdraft
A facility to overspend on a current account up to an agreed sum
Advantages of overdraft
Easy to arrange
Only pay interest if you use it
Helps with short term cash shortages
Disadvantages of overdraft
Interest charges are high
Very high penalties for unauthorised overdraft
Bank can cancel overdraft
Definition of personal loan
Borrow a set amount for a set period
Advantages of personal loans
Monthly repayments easy to budget for
Suits large purchases
Disadvantages of personal loan
You need good credit history
Interest payments add to total cost of loan
Definition of credit card
A method of buying goods and services but paying for them later
Advantages of credit card
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
Disadvantages of credit card
Credit limit
Interest rates are higher than a personal loan
Easy to get into debt
Definition of payday loan
A loan until you get paid your wages at the end of the month
Advantages of payday loan
Quick and easy to arrange
Solves immediate cashflow problems
Disadvantages of payday loan
Very high interest rates
Easy to get into serious debt
