Topic 5: Good Debt, Bad Debt

Question 1

What are the benefits of borrowing

Answer 1

fund large item and pay later

keep financial plans stable

Question 2

Average time of mortgage loan

Answer 2

25 years

Question 3

What is the cost of borrowing

Answer 3

APR, interest is variable based on credit history

Question 4

what is representative APR

Answer 4

rate offered to 51% of people, mostly used in marketing

Question 5

list from 1 to 4 the loans with highest to lowest APR’s

Answer 5

1. payday
2. credit
3. personal loans
4. mortgage

Question 6

What is hardcore debt

Answer 6

debt that a person cannot repay at current time

Question 7

What was average credit card rate in November 2020

Answer 7

20.91%

Question 8

Name 3 credit reference agencies

Answer 8

1. Experian
2. Equifax
3. TransUnion

Question 9

Financial Footprints

Answer 9

the record of every transaction made, allowing providers to get image of consumer

Question 10

Country court Judgement

Answer 10

judgement from country court to person who doesn’t respond to court action from providers

Question 11

Consolidation loan

Answer 11

Loan to pay off different debts, meaning just one place to pay.
can be secured to home

Question 12

small print

Answer 12

legal terms and conditions attached to product

Question 13

Informal payment plans

Answer 13

speak to creditor, explain situation and agree to reduced monthly repayments

Question 14

Debt management plans

Answer 14

detailed plan from debt management company sent to creditors to help repayment

Question 15

administration order

Answer 15

repayment plan by county court is unsecured debt is less than £5000
paid to court, then to creditor

Question 16

What is individual voluntary arrangement

what is the criteria

Answer 16

formal alternative to bankruptcy comprising of a contractual arrangement
creditors must make up 75% of debt
supervised by insolvency practitioner
usual term 5 years
costs, IP usually 2500 and annual fee of 1000

Question 17

Debt relief order

Answer 17

order if cant repay debt,
fees included but heaper then bankruptcy,
debts frozen and discharged after 12 months

Question 18

Bankruptcy

Answer 18

owed £5000 on unsecured loan can declare bankruptcy
official IP takes over finances
period before discharge usually 12 months but damages footprints for 6 years
expensive

Question 19

Drawbacks of bankruptcy

Answer 19

cant access products
loss of assets
cant join army and police
potential embarrassment

Question 20

What 4 places offer DMP

Answer 20

1. Stepchange Debt charity
2. national debt line
3. payplan
4. The debt advice foundation