A4 Managing personal finance Flashcards
1
Q
Overdraft
A
- this is when you take more money from the bank but must quickly pay it back
- otherwise, you must pay high levels of interest
- this is an arranged overdraft
2
Q
Overdraft advantages
A
- interest is charged only on the amount outstanding
- can be paid off without penalties
- an overdraft facility can be prearranged and only used if needed
- provides a short-term solution to cash flow problems
3
Q
Overdraft disadvantages
A
- when used, interest charges are often high
- additional penalty charges for going over a pre-arranged limit are often very high
- not the cheapest form of borrowing
- the ease with which these can be obtained could encourage overspending
4
Q
Personal loans
A
- you can borrow this money to use for a variety of purposes
- these loans can be provided by banks, credit unions or online lender
- level of interest will depend on credit rating
5
Q
Personal loans advantages
A
- the longer you take to pay back, the shorter the amount per month
- planning and budgeting are eapydue to regular and pre-agreed payments
- these would only be ruled to those who have proved their ability to repay
- useful when looking to purchase a specific item of medium to high value e.g. a car or home improvement
6
Q
Personal loans disadvantages
A
- the longer you take to pay back, the higher the interest
- may have to be secured against an asset so could potentially may be lost to cover the outstanding debt
- not suitable for short term loans
7
Q
Hire purchase
A
- you hire an item and pay certain amounts per month
- you do not own the item until you pay the full amount
- at the end of the period, you either pay a lump sum to keep it or give it back
- often used for purchasing cars or equipment
8
Q
Hire purchase advantages
A
- spreads the cost of an expensive item over a period
- credit is secured against a specific term
- often allows a customer to afford something now that they could not otherwise afford e.g. four years interest free on furniture
9
Q
Hire purchase disadvantages
A
- interest charges may be higher than other traditional loans
- ownership of the asset may legally be kept by the seller until the final payment is made
- agreements can be manipulated to make a purchase seem deceptively appealing
10
Q
Mortgages
A
- its a type of loan use d to finance property
- mortgages are used specifically for buildings, especially homes
- you pay a mortgage for 20, 35, 40 years etc…
- it is most likely the biggest loan you’ll ever take
11
Q
Mortgages advantages
A
- interest rates are really low
- can sometimes be fixed or tracked against a standard rate of interest receding the risk of fluctuations
- you can live in something you don’t own
- overpayment options are good
- you can spread the cost of expensive items over a long period of time
12
Q
Mortgages disadvantages
A
- if you don’t pay it back, you could lose your home
- the risks are quite high
- there are stricter rules on taking out a mortgage e.g. penalties may be applied to early repayment
- interest rates can vary seriously affecting the borrower’s ability to repay or meet other expenses
13
Q
Credit Cards
A
- allows people to buy items without cash
- the most common way to access a line of credit
- can be used to make purchases, balance transfer and/or cash advances
- requires that you pay back the loan amount in the future
14
Q
Credit Cards advantages
A
- very flexible
- quick access to money and very convenient
- can pay above the minimum rate if you wish and hence speed up the rate of repayment and reduce incurred
- provides some protection on purchases
- can be used for items of multiple sized and value, to a limit, without the need to secure against an asset
15
Q
Credit Cards disadvantages
A
- can encourage overspending, sometimes on unnecessary purchases
- can easily lead to debt problems
- interest rates are often higher than a personal loan
