Types of Borrowing

Question 1

Overdraft

Answer 1

Allows you to take out money that you do not have from a current account. It will help meet your short-term needs, for example needing cash just before payday.
Adv- Short-term solution to cash flow problem
DisAdv- Interest charges are high

Question 2

Personal Loans

Answer 2

Gives the ability to borrow a set amount of money for a specific purpose, which will be paid in regular instalments with interest.
Adv- Useful for purchase of medium or high value item
DisAdv- Loan is secured against an asset

Question 3

Hire Purchase

Answer 3

Allows you to have an item immediately but with regular payments. Items will not be owned by the buyer until they the whole item off.
Adv- Spreads the cost over a period of time
DisAdv- Interest charges is higher than traditional loans

Question 4

Mortgages

Answer 4

Long term loan to fund the purchases of an asset, e.g. house. Paid back over a long period of time e.g. 25 years. Cannot be paid in one go as large.
Adv-Consumer can spread cost over long period of time
DisAdv- If payment not made then assets can be taken away

Question 5

Credit Card

Answer 5

Goods and services are paid for using the card, then paid at the end of a set period or paid overtime with payments made every month
Adv- Provides protection on purchases
DisAdv- Interest rates are high

Question 6

Payday loans

Answer 6

Short-term source of finance used for gap between receiving payments/wages. Only available for short amounts at high rates. Suitable for emergencies to meet short-term cash needs
Adv- Easy to secure
DisAdv- High interest rates