Personal Finance

Question 1

What is an overdraft

Answer 1

And overdraft is the facility to overspend on the current account up to an agreed sum

Question 2

Advantages of overdrafts

Answer 2

Only borrowed when required 11 flexibility and only paid for the money borrowed
It’s quick and easy to arrange and no charges for paying off the overdraft

Question 3

Disadvantages of an overdraft

Answer 3

The bank and call in at any time
Only available from a current bank account
Interest payments tend to be verible making it more difficult to budget
Banks may secure the overdraft against an asset therefore there is a risk of repossession

Question 4

What is the personal loan

Answer 4

A set amount of money provided to an individual or couple for a specific purpose to be repaid with interest over a set period of time

Question 5

Advantages of a personal loan

Answer 5

Quick and easy to secure and fixed interest rates allow individual to budget it also improves cash flow

Question 6

Disadvantages of a personal loan

Answer 6

Interest must be paid regardless of the financial situation and an individual normally provides security known as collateral
Often expensive interest repayments and can be charged a penalty for early payment

Question 7

What is hire purchase

Answer 7

Spreading the cost of a purchase over a pre-agreed period of time

Question 8

Advantages of a hire purchase

Answer 8

Immediate use of the item and the cost is spread over a period of time there are also fixed instalments

Question 9

Disadvantages of a hire purchase

Answer 9

Additional costs for example interest rates may apply

Payments have to be made or item will be repossessed

Question 10

What is a mortgage

Answer 10

A long term loan to fund the purchase of an expensive item that will hold value for long time for example house

Question 11

Advantages of a mortgage

Answer 11

Makes it possible to buy items such as a house which will not be feasible otherwise
It’s spread the cost of an asset over long period of time
Changes can be made to find the best deals on a semi regular basis depending upon mortgage chosen

Question 12

Disadvantages of a mortgage

Answer 12

Payments can be subject to change for example if interest rates change

Question 13

what are payday loans

Answer 13

A short term loan for a relatively small amount of money to be repaid upon receipt of a lenders next wage

Question 14

Advantages of a payday loan

Answer 14

Sold short-term cash flow problems and it’s a quick access to funds

Question 15

Disadvantages of a payday loan

Answer 15

High rates of interest and needs to be repaired quickly it can also escalate out of control if not repaid quickly