A4 Managing Personal finance - Exam questions

Question 1

Discuss the advantages and disadvantages of an individual getting an overdraft to make a payment for a holiday ?

(6 marks )

Answer 1

advantages of an overdraft :
- Interest is only charged on the amount outstanding.
- can be repaid without any penalties.
- it’s flexible, you can only borrow money when you need at the time.
- it is cheaper than a loan if repaid quickly.
- quick and easy to arrange.

Disadvantages :
- there will usually be a charge if you want to extend your overdraft.
- you could be charged if you go over your overdraft limit.
- The bank can ask for the money back at any time.
- you can only get an overdraft from the bank that you hold you current account with.

Question 2

Discuss the advantages and disadvantages of an individual using a personal loan to make a payment for a holiday ?

Answer 2

Advantages :
- Regular payments make budgeting easier.
- Interest is fixed and built into the repayment’s.
-interest rate is lower than the overdraft.
- can spread the cost over a longer period.
- not repayable in demand.
- easy to apply for , can apply online.
- don’t have a bank with the loan provider so can search for cheapest deal.

Disadvantages :
- Not flexible - usually penalty for early re - payement.
- will include charges and penalty for late/missed payement.
- can be more expensive than overdraft if taken over a long period.

Question 3

Discuss the advantages and disadvantages of an individual putting money into a savings account ? ( 6 marks )

Answer 3

• typically for short - term goals - often 3 years or less.
• can be used for an emergency.
• money can be accessed easily but it affects the interest rate return.
• some accounts limit the number of times you can access money or notice period to increase the interest rate and return .
• could save the money in a ISA tax free, which increases return.

Question 4

Discuss the advantages and disadvantages of an individual of investing money in shares ?

Answer 4

• typically for more - long term goals - four years or more.
• not easy to access money if it is invested - might have to sell shares and lose money.
• investments always involve risk - you could lose all of your investment.
• share prices can go up and down.
• rewards are greater than returns on savings because of the risk.
• could receive dividends on each share.
• dividends may not be paid depending on the discretion of the company.

Question 5

Discuss which type of car insurance would be best for an individual. ( 6 marks )

Answer 5

Third party :
Minimum legal of cover in the UK. Some insurers will not offer this level of cover. Third party will compensate any passengers that suffer from injuries while travelling in the car , but it will never pay for the damage to your car. It will not pay if the car is stolen or damaged by fire. Third party is a cheaper way to build up no claims discount.

Third party , fire and theft :
It covers damage to own car as a result of fire or theft. It covers third party damage if you have an accident. Relatively cheaper.

Fully comprehensive :
covers damage to the car as a result of accident, fire or theft as well as cover for windscreen damage. It covers third party damage if you have an accident. It covers other items such as personal accident or injury , death of policyholder, medical expenses, personal effects , in - car entertainment,
It often includes a courtesy car.

Conclusion :

• full comprehensive cover can still be the cheapest option
• the cost of the insurance will vary depending on the cars specification and size of the engine.
• All car insurances offer an opportunity to build no claims bonus discount.