Scamming Unit 3 Goons

Question 1

Give 2 advantages of using a mortgage as a method of borrowing.

Answer 1

Enables an individual to spread the cost of an expensive item over a long period of time.

Interest rates can be fixed or tracked against the standard variable rate which reduces the risk of fluctuations and helps to make budgeting easier.

Question 2

Give 2 disadvantages of using a mortgage as a method of borrowing.

Answer 2

It is an enormous debt carried over a long period of time.

The asset can be repossessed if regular repayments are not made.

Question 3

Give 2 advantages of using credit cards as method of borrowing.

Answer 3

Allows a period of interest free credit (usually 1 month) providing the balance is repaid in full.

Provides some protection on purchases.

Question 4

Give 2 disadvantages of using credit cards as a method of borrowing.

Answer 4

Can encourage individuals to overspend.

High interest rates are changed if the balance is not cleared at the end of each month.

Question 5

Gives 2 advantages of using hire purchase as a method of borrowing.

Answer 5

Spreads the cost of an expensive item over time.

Credit is secured against the specific item being purchased.

Question 6

Gives 2 disadvantages of using hire purchase as a method of borrowing.

Answer 6

It is a fixed contract.If your circumstances change during this and repayments cannot be made, you could lose the asset.

Likely to pay more for the asset compared to using cash due to interest charged.

Question 7

Give 2 advantages of using a personal loan as a method of borrowing.

Answer 7

Budgeting is easier as the payment plan will be pre-agreed and involve regular set payments.

Useful when looking to purchase a specific item of medium to high value e.g. car.

Question 8

Give 2 disadvantages of using a personal loan as a method of borrowing.

Answer 8

Likely to be an unsecured loan and therefore interest rates are going to be high.

Not suitable for everyone as a good credit rating and credit history is required to be eligible.

Question 9

Give 2 advantages of using a overdraft as a method of borrowing.

Answer 9

Interest is only charged on the amount borrowed.

An overdraft can be pre-arranged and used to meet short-term cash flow problems.

Question 10

Give 2 disadvantages of using a overdraft as a method of borrowing.

Answer 10

If the overdraft has not been pre-arranged, the penalty charges are usually very high.

Can encourage overspending due to the ease at which can be obtained.

Question 11

Give 2 advantages of using a cheque as a method of borrowing.

Answer 11

Low risk form of payment as the cheque can only be cashed by the named payee.

Widely accepted for face-to-face or postal transactions.

Question 12

Give 2 disadvantages of using a cheque as a method of borrowing.

Answer 12

Viewed as old fashioned.

Easy to make errors when writing the cheque which can cause problems for both the consumer and the recipient.

Question 13

Give 2 advantages of using a debit card as a method of borrowing.

Answer 13

No need to carry cash.

Widely accepted and a secure method of payment.

Question 14

Give 2 disadvantages of using a debit card as a method of borrowing.

Answer 14

Short time lapse between making the transaction and the money being drawn from the customer’s account.

Not accepted or appropriate for small transactions.

Question 15

Give 2 advantages of using cash as a method of borrowing.

Answer 15

Most widely accepted form of exchange.

Makes budgeting easier.

Question 16

Give 2 disadvantages of using cash as a method of borrowing.

Answer 16

Can be lost or stolen.

Cannot be used for online purchases.

Question 17

Give 2 advantages of using a credit card as a method of borrowing.

Answer 17

Allows a period of credit that is interest free -usually one month.

Suitable for online transactions.

Question 18

Give 2 disadvantages of using a credit card as a method of borrowing.

Answer 18

Interest is charged on balances not paid off within a month.

Can encourage custoemr to overspend and get into debt.

Question 19

Give 2 advantages of using BACS (Bankers Automated Clearing Service) as a method of payment.

Answer 19

Faster payment allows almost instant transfers that are guaranteed within two hours.

No additional costs.

Question 20

Give 2 disadvantages of using BACS (Bankers Automated Clearing Service) as a method of payment.

Answer 20

A limit is set on the amount that can be transferred in a single transaction.

Faster payment is not offered by all banks and branches and therefore BACS may have to be used which takes three days to clear.

Question 21

Give 2 advantages of using payday loans as a method of borrowing.

Answer 21

A fast source of cash in a financial emergency.

Do not require a credit report and therefore eligibility for this type of loan is likely to be guaranteed.

Question 22

Give 2 disadvantages of using payday loans as a method of borrowing.

Answer 22

The loan is for a short period only.

Involve both fees and high interest payments - the charges are significantly higher than with a standard bank loan.

Question 23

Give 2 advantages of using shares as a type of saving and investment.

Answer 23

Share prices fluctuate giving the potential for a high reward.

Additional benefits for being a shareholder e.g. discounts and special offers.

Question 24

Give 2 disadvantages of using shares as a type of saving and investment.

Answer 24

Share prices fluctuate offering a potential high risk.

There is no guarantee of a return on the investment.

Question 25

Give 2 advantages of using pensions as a type of saving and investment.

Answer 25

Encourages individuals to save throughout their working life for retirement.

Some policies are boosted by employer contributions which increases the final value of the savings.

Question 26

Give 2 disadvantages of using pensions as a type of saving and investment.

Answer 26

The final outcome and value of the pension is difficult to predict.

If individuals move jobs it may mean that a number of policies are held, reducing the cumulative value of savings.

Question 27

Give 2 advantages of using a deposit and saving account as a type of saving and investment.

Answer 27

Interest is earned on positive balances.

Setting up a regular deposit amount can encourage good financial habits.

Question 28

Give 2 disadvantages of using a deposit and saving account as a type of saving and investment.

Answer 28

Interest earned is taxed.

Interest earned will be less than interest paid on borrowing, therefore any benefits are lost if the individual has borrowing to repay.

Question 29

Give 2 advantages of using a bonds and gilts as a type of saving and investment.

Answer 29

Regular fixed returns.

Spread risk across a range of markets.

Question 30

Give 2 disadvantages of using a bonds and gilts as a type of saving and investment.

Answer 30

Risk of losing some, or all of the value of the investment if the bond or gilt value falls.

Interest payments may not be received if the issuer is unable to make payments.

Question 31

Give 2 advantages of using an ISA as a type of saving and investment.

Answer 31

INcome tax is not charged on the interest earned allowing the saver to keep all of the rewards.

Interest rates can be slightly higher than in alternative saving accounts.

Question 32

Give 2 disadvantages of using an ISA as a type of saving and investment.

Answer 32

There is a limit on the amount that can be placed in an ISA.

Notice is often required to make withdrawals and there is often a limit on the number of withdrawals made.

Question 33

Give 2 advantages of using premium bonds as a type of saving and investment.

Answer 33

Can be easily withdrawn with no loss or penalty.

A chance to win substantially more tha ncould be earned in interest.

Question 34

Give 2 disadvantages of using premium bonds as a type of saving and investment.

Answer 34

No guaranteed return on investment.

The amount invested, assuming zero or low returns, loses value due to inflation.

Question 35

Give 2 advantages of using a basic account as a type of current account.

Answer 35

Available to customers with a low credit rating.

It offers an easy first step to gaining access to basic banking features e.g. paying in and withdrawing money.

Question 36

Give 2 disadvantages of using a basic account as a type of current account.

Answer 36

Limited facilities can prove an inconvenience e.g. no debit card.

May take time to improbe credit rating in order to progress to a standard account.

Question 37

Give 2 advantages of using a student account as a type of current account.

Answer 37

Low deposits required- in some cases paying in a student loan is sufficient.

Incentives and freebies can be particularly useful e.g. free rail cards.

Question 38

Give 2 disadvantages of using a student account as a type of current account.

Answer 38

Low interest on credit balances compared with a standard current account.

Overdraft facilities could encourage overspending.

Question 39

Give 2 advantages of using a packaged, premium account as a type of current account.

Answer 39

It is often cheaper than buying all the additional benefits separately.

No charges on credit balances.

Question 40

Give 2 disadvantages of using a packaged, premium account as a type of current account.

Answer 40

The value of the incentives on offer is only worthwhile if they meet the needs of the customer and are used.

Additional monthly charges are often applied.

Question 41

Give 2 advantages of using a standard account as a type of current account.

Answer 41

No charges on credit balances.

Offers the wide range of banking facilities required.

Question 42

Give 2 disadvantages of using a standard account as a type of current account.

Answer 42

Possibility of high interest charges on overdrafts.

Standard features only and no additional benefits are available.