Type of Borrowing

Question 1

What are the different Types of Borrowing?

Answer 1

Overdraft
Personal Loan
Hire Purchase 
Mortgages 
Credit Cards 
Payday Loans

Question 2

Advantages and Disadvantages of Overdraft

Answer 2

Interest is charged only on the amount outstanding
Can be paid off without penalties
An overdraft facility can be prearranged and only used if needed
Provides a short term solution to cash flow problems.

Interest charges are often high
Additional penalty charges for going over a pre-arranged limit are often very high
Not the cheapest form of borrowing
The ease with which these can be obtained could encourage overspending

Question 3

Advantages and Disadvantages of Personal Loan

Answer 3

Pre-agreed payments make planning and budgeting easy
As a general rule these would only be issued to individuals who can prove their ability to make the repayments
Useful when looking to purchase a specific item of medium to high value.

May have to be secured against an asset which means if payments are missed the asset may be taken to cover the outstanding debt
Not really suitable for short term loans