Topic 6 - borrowing products

Question 1

What are overdrafts?

Answer 1

These enable people to borrow money from their current account provider by withdrawing more money from the account they have paid in.

Question 2

What are the ways to avoid costs of an overdraft’s high interest rate?

Answer 2

• sign up for an alert service
• check account balance regularly
• choose a basic bank account as they don’t have overdraft facilities

Question 3

What are credit cards?

Answer 3

Cards where an account holder can make transactions using money from their provider instead of their own funds.

Question 4

Who are the four parties involved in using a credit card to pay transactions?

Answer 4

• the cardholder
• the merchant (seller who accept credit cards)
• the merchant’s bank (the acquirer)
• the cardholder’s bank (the issuer)

Question 5

What are the security measures associated with credit cards?

Answer 5

• Chip and PIN identification system
• CVV (card verification value) for online payments
• customer authentication, sending a one time security code to the phone number associated with the card

Question 6

What are the costs of using a credit cards?

Answer 6

APR on amount borrowed and any other fees that apply.

Question 7

What is a low APR credit card?

Answer 7

A card that offers a long term low APR - this is available to those with certain levels of income with good repayment history

Question 8

What are Cashback cards?

Answer 8

Cards that give the cardholder back a percentage of the transaction made on card as cash.

Question 9

Reward cards

Answer 9

Cards that offer reward schemes such as using discounts off their shopping or on gift vouchers

Question 10

Charity donation cards

Answer 10

Credit cards used to donate to charities

Question 11

First credit cards

Answer 11

Cards for those who have never had credit cards before or are using for the first time. These are offered at a higher APR

Question 12

Gold, Platinum, Black credit cards

Answer 12

Credit card that have higher credit limit and are offered to people with higher incomes.

Question 13

Store cards

Answer 13

Credit cards that retailers offer which can only be used in their own stores

Question 14

Charge cards

Answer 14

Credit cards that must be repaid in full every month, and don’t have interest or charge APR

Question 15

What are personal loans?

Answer 15

A borrowing products that allows the cost of repayment to be spread over a number of years

Question 16

What are payday loans?

Answer 16

Short term, high cost credit loans designed to help people meet their commitments until their next payday. They have high interest rates and the amount owed can quickly add up.

Question 17

What is credit history?

Answer 17

A record of an account holders borrowing and repayment history.

Question 18

What do providers use credit history for?

Answer 18

To decide whether or not to lend money to someone who has applied for a product: people with poor credit histories will have to pay for a borrowing product

Question 19

What should people consider when choosing borrowing products

Answer 19

• how much they want to borrow
• What they can afford to repay
• when they plan to repay
• different borrowing options available
• cost of borrowing options
• consequences of borrowing