Managing Finances Flashcards
What is an overdraft ?
An overdraft is a short term loan which can be used to pay bills if you’re short of cash . Arranged with the bank up to an agreed amount when your account is below £0
What is a personal loan ?
A personal loan can be used to purchase an expensive item such as a car . Fixed amount is paid back monthly with fixed interest
What is a hire purchase ?
A hire purchase is where you put down a deposit and pay in monthly instalments
What is a mortgage ?
A mortgage is a loan which is taken out to purchase a property , usually over 25 years and is paid back in monthly instalments
What is a credit card ?
A credit card is usually used to buy goods and services where you spend up to the amount agreed and make a minimum payment each month
What is a payday loan ?
A payday loan is a short term loan , usually for small amounts for people who need cash between pay days
Advantages of an arranged overdraft ?
-usually free to set up
-you can only pay interest on the money you borrow
-arranged overdrafts are much cheaper than unarranged ones
Disadvantages of an arranged overdraft ?
-interest is high and you will be charged a fee to use your overdraft
-if you go over the overdraft limit then there will be penalty charges
-could affect your credit rating score
Advantages of personal loans ?
-monthly instalments allow you to plan your expenditure
Disadvantages of personal loans ?
-if you fail to make payments on a secured loan , you may lose the asset it is secured against
-if you have a poor credit score , higher interest rate s
Advantages of hire-purchases ?
-spreads payment over a long period of time
-allows you to but an expensive item at an amount you can afford
Disadvantages of hire purchase ?
-pay more than the value of the asset
-don’t own the asset until its paid in full
Advantages of a mortgage ?
-allows people to buy a property such as a house
-payments are spread over a long period of time
Disadvantages of a mortgage ?
-if repayments are missed then the property can be repossessed
-not completely your house so can be repossessed if miss payments
Advantages of a credit card ?
-if you pay the full amount each monthly , you will pay no interest
-allows money in your account to get interest while spend credit card money
Disadvantages of credit cards ?
-can encourage overspending
-high interest if not paid off in full every month
-interest rates are higher than personal loans
-charged interest on outstanding amount
Advantages of Payday loans ?
-accessible to those with poor credit scores
-help with short term cash flow problems
Disadvantages of pay day loans ?
-very high interest rate so is a very expensive way to borrow
What is an ISA ?
An ISA is a type of saving account where the holder is not charged income tax on the interest received
Advantages of ISA’s ?
-Interest rates are slightly higher than alternative saving accounts
-tax is not charged on the interest
Disadvantages of ISA’s ?
-There is a limit on the amount you can put in an ISA each year
-notice is required to make withdrawals and can be a limit to the amount of times you can make a withdrawal
What are deposits and savings account ?
Deposits and savings account is where interest is paid on the balance
Advantages of savings and deposits accounts ?
-interest is earnt
-accounts can require you regular deposits which encourage you to follow a saving plan
Advantages of savings and deposits accounts ?
-interest is earnt
-accounts can require you regular deposits which encourage you to follow a saving plan
Disadvantage of deposits and saving accounts ?
-interest earned is taxed
What a premium bonds ?
Premium bonds are a government scheme which allows individuals to save up to a set amount by buying bonds where entered to win cash prizes
Advantages of premium bonds ?
-chance to earn substantially more than what could be earned in interest
-can be easily withdrawn at anytime with no penalty or loss
Disadvantages of premium bonds ?
-no guaranteed return on investment
-maximum account is reviewed annually by the government
What are bonds and gilts ?
Bonds and gilts are where the lender , lends money to companies and the government in return for interest payments
Advantages of bonds and gilts ?
-regular fixed returns
-spreads the risk across a range of markets
Disadvantages of bonds and gilts ?
-risk of losing some or all of the value of the investment if the bond or gilt fails
What are shares ?
Shares give investors part ownership of a company and the shareholders receive dividends from the company’s profit
What are advantages of owning shares ?
-share prices can fluctuate offering the potential of a high reward
-as part owners they may get additional benefits such as discounts
What are disadvantages of owning shares ?
-share prices can fluctuate so potential risk of loss
-no guarantee of reward
What are pensions ?
Pensions are where individuals make regular contributions to a pension which are saved for retirement
What are advantages of pensions ?
-encourages individuals to save throughout their working life in preparation for retirement
- an individuals savings are boosted by employer contribution
What are disadvantages of pensions ?
-moving between jobs , reduces overall value of the savings
-final outcome is difficult to predict
What are the 6 types of insurance ?
-car
-life
-travel
-pet
-home and contents
-health
What are the factors affecting insurance ?
-excess
-medical conditions
-job
-level of cover
-previous claims
-location
-annual or monthly payments
-supplier
What are advantages of motor (car ) insurance ?
-satisfies the legal requirement for car owners to have insurance
-three levels of cover to meet individual requirements (third party ,third party fire and theft , fully comprehensive )
-can build up no claims bonus
-provides protection against liability claims from other drivers
What are disadvantages of motor (car) insurance ?
-expensive for new or young drivers
-policy excess can add to costs in the event of a claim
What are advantages of home and contents insurance ?
-home insurance covers the cost of rebuilding or repairs as a result of fire , flooding or subsidence etc
-contents insurance covers loss or damage to personal possessions
-security precautions can reduce premiums
What are disadvantages of home and contents insurance ?
-only covers the cost of rebuilding the property , not the market value
What are advantages of life insurance ?
-life insurance pays out a sum of money in the event of a death
-pay out may be larger than the total amount of premiums paid
What are disadvantages of life insurance ?
-pre existing medical conditions may not be covered
What are advantages of travel insurance ?
-provides cover for delays , cancellations of trips
-provides cover for the loss of personal possessions while on the trip
-provides cover for emergency medical expenses
What are disadvantages of travel insurance ?
-pay outs may not cover the full amount of the financial loss
-high risking sport activities usually require an additional premium
-pre existing medical conditions are not covered
What are advantages of pet insurance ?
-vet bills can be expensive
-cover provided for personal injury to damage caused by the animal
-can opt for lifetime cover for serious illnesses for an additional premium
What are disadvantages of pet insurance ?
-pre existing medical conditions aren’t covered
-some policies will limit the amount of medical expenses covered
-vaccinations aren’t covered
What are advantages of health insurance ?
-covers some or all private medical costs with convenient treatment times
-you can choose the type of illnesses and treatment you want to cover
What are disadvantages of health insurance ?
-pre existing medical conditions are not covered
-medical conditions which arise during the initial period of the policy may not be covered
Why is it good to use price comparison websites ?
-helps consumers to see a wide range of options
-saves time
-convenient and available 24/7
-ability to use filters to be able to compare
-provides up to date information
-easy to use
