Different Types of Borrowing

Question 1

What are the 6 different types of borrowing:
1.
2.
3.
4.
5.
6.

Answer 1

1. Overdraft
2. Personal loans
3. Hire purchase
4. Mortgages
5. Credit cards
6. Payday loans

Question 2

An overdraft is the feature to ___________ money that you
do not have from a current account.

Answer 2

withdraw

Question 3

What are 2 advantages of an overdraft:

1. _______________________ only on the amount __________________.
2. Provides a short term solution to ________________________.

Answer 3

Interest is charged
outstanding

cash flow problems

Question 4

What are 2 disadvantages of an overdraft:

1.
2.

Answer 4

1. Encourages overspending.
2. The additional penalty charge for going over the limit is very high.

Question 5

A personal loan is a matter of ____________________________ to be repaid in _______________________ with _____________.

Often used to buy a car or for home improvements.

Answer 5

borrowing a set amount of money
regular instalments
interest

Question 6

What is an advantage of a personal loan:

Answer 6

They are regular, pre-agreed payments which make budgeting easy.

Question 7

What is a disadvantage of a personal loan:

May have to be __________________________.
If payments are missed the asset may be taken to cover outstanding debt.

Answer 7

secured against an asset

Question 8

What does “secured against an asset” mean?

Answer 8

It means that a loan is backed by something valuable you own, which the lender can take if you don’t repay.

Question 9

Hire purchase is a matter of ____________________________ but paying for it in ______________________.

The item remains the property of the seller until all instalments have been made.

Answer 9

using an item immediately
regular instalments

Question 10

What is the main advantage of hire purchase:

Answer 10

Spreads the cost of an expensive item over a period
of time.

Question 11

What is the main disadvantage of hire purchase:
_________________________ may legally be kept by the __________ until the _________________ is made.

Answer 11

Ownership of the asset
seller
final payment

Question 12

A mortgage is a __________________ to fund the purchase of assets, normally paid back over _________________.

Answer 12

long-term loan
a long time

Question 13

What are 2 advantages of a mortgage:

1. Allows the customer to __________ the cost of expensive
   items over a __________________________.
2. Interest rates can be __________ against a __________________________, reducing the risk of ________________.

Answer 13

1. spread
   long period of time
2. fixed
   standard rate of interest
   fluctuations

Question 14

What are 2 disadvantages of a mortgage:

1. Interest payments can be only be _________ for a _______________________________.
2. Failure to meet repayments may lead to a ____________________ and ______________________________________.

Answer 14

1. fixed
   short period of time
2. loss of a home
   affect future credit ratings

Question 15

A credit card offers goods to be paid for by:
1. A _______________ issued at the end of a set period.

2. A _______________________ each month over a period of time.

Answer 15

1. statement
2. minimum payment

Question 16

What are 2 advantages of a credit card:

1. Unlike a mortgage, the credit card holder can _________________________________ if they want to.
2. Can be used for ____________________________________.

Answer 16

1. speed up the rate of repayment
2. items of multiple sizes and value

Question 17

What are 2 disadvantages of a credit card:
1.
2.

Answer 17

1. Can encourage overspending.
2. The interest rates are higher than personal loans.

Question 18

A payday loan is a short term source of finance used in a period between __________________.

It is only available for _______________________
at __________________.

Answer 18

receiving a wage

relatively small amounts
very high rates

Question 19

What are 2 advantages of a payday loan:
1.
2.

Answer 19

1. Help solve short term cash flow problems immediately.
2. Easy to secure.

Question 20

What is the main disadvantage of a payday loan:

Answer 20

Interest rates are very high.