Borrowing

Question 1

What is an overdraft?

Answer 1

Short term loan, borrow money up to an agreed amount when your current account reaches zero

+ usually free. Only pay interest on money you borrow

• interest is high and you will be charged a fee to use your overdraft

Question 2

What is a personal loan?

Answer 2

Borrowing a fixed amount and pay ir back in monthly instalments (over a few years)

+ monthly instalments allow you to plan your expenditure

• failure to make payments, you will lose the assest it is secured against

Question 3

What is hire purchase?

Answer 3

Usually used to buy a car. Put down a deposit then pay monthly instalments over a few years. During the payment, you hire , once all paid for, you own.

+ allows purchase if an expensive item at an amount you can afford

• if you fall behind with payments, then the lender may repossess the car

Question 4

What is a mortgage?

Answer 4

Loan taken out to buy a porperty

+ allows you to buy your house and spread the cost over a long period

• if repayments are not made, the property can be repossessed

Question 5

Credit card

Answer 5

Buy goods and services, spend up to the amount of the credit card limit on your card

+ if you pay full amount , pay no interest

• pay minimum amount on the statement, will be charged interest on the amount

Question 6

What is a pay day loan?

Answer 6

Short term loan, often when people need cash to pay bills

+ can help with cash flow problems

• very expensive way to borrow