Borrowing Flashcards
What are the 6 main types of Borrowing?
- Overdraft
- Personal loan
- Hire purchase
- Mortgage
- Credit card
- Payday loan
What type of loan is an Overdraft?
short term loan
What is the positive of an Overdraft?
- Usually free to set up
- Interest is only paid on the money borrowed
What is the negative of an Overdraft?
- The interest on overdrafts are often high
- If the overdraft limit is gone over/ an unarranged overdraft their will be penalty charges
What is an Overdraft?
An overdraft is an agreement made with the bank to allow the customer to borrow up to an agreed amount.
What type of loan is a Personal Loan?
Long term loan ( usually 1 to 5 years)
What is a Personal Loan?
A borrowed fixed amount paid back in set monthly instalments.
What are the positives of a Personal Loan?
- Monthly instalments allow the user to plan expenditure.
What are the negatives of a Personal Loan?
- There may be arrangement fees (which can add to the cost)
- Asset can be lost if payments are not complete.
What type of loan is Hire Purchase?
Long term loan (usually 1 to 5 years)
What is Hire Purchase?
This is usually used when buying a car.
During the payment period, you hire the car, once the instalments are paid you own the car.
What are the positives of Hire Purchase?
- Allows you to buy an expensive item at an affordable amount.
What are the negatives of Hire Purchase?
- If payments are not completed on time the lender may repossess the object (car)
What type of loan is a Mortgage?
Long term loan (usually 25 years)
What is a Mortgage?
Is a loan taken out to buy a property.
What are the positives of a Mortgage?
- Allows the user to buy a home
- The cost is spread over a long period of time
- Fixed or tracked mortgage rates can help make payments affordable
What are the negatives of Mortgages?
- Increase in interest rates may effect the users ability to pay back the mortgage
- Property is used as security
What type of loan is a Credit Card?
Short term loan (paid back monthly)
What is a Credit Card?
A credit card is used up to a certain limit, then paid at the end of the month.
What are the positives of Credit Cards?
- If the full amount is paid each month there is no interest
What are the negatives of Credit Cards?
- Interest rates are higher than on a personal loan
What type of loan is a Payday Loan?
Short term loan
What is a Payday Loan?
Usually a loan for small amounts, often when people need cash between pay cheques.
What are the positives of a Payday Loan?
- Can help with cash flow problems
