types of borrowing Flashcards
overdraft
allows you to withdraw money you do not have from a current account, may be suitable to meet short term needs.
advantages of overdraft
interest charged only on amount outstanding, can be paid without penalties
disadvantages of overdraft
on the money that is withdrawn the interest is very high. not the cheapest form of borrowing.
personal loan
gives you the ability to borrow something for a set amount of money and you can pay it back with regular installments paid with interest. may be used to fund a higher priced item such as a car.
advantages of a personal loan
regular pre-agreed payments makes budgeting easier, issued to individuals who have the ability to pay it back ( good credit rating)
disadvantages of a personal loan
not suitable for short term loans, if payments are missed the asset may be taken to cover outstanding debt.
hire purchase
allows you to acquire asset immediately while paying for it in regular installments
advantages of hire purchase
spreads cost of expense over period of time. credit is secured against a specific item
disadvantages of hire purchase
interest may be higher than traditional loans, ownership of asset may legally be kept by the seller until the final payment is made
mortgage
long term loan where money is repaid over an average of 25 years. suitably for an asset that will maintain value for a long period of time.
advantages of mortgage
allows customer to spread expenses across of item for a very long period of time
disadvantages of mortgage
failure to repay may lead to a loss of a home and seriously affect an individuals future credit ratings
credit card
bank gives you a card that you can spend money on then pay it back in regular installments
advantages of credit card
allows people to buy now pay later, increases credit rating. provides some protection on purchases
disadvantages of a credit card
could result in overspending, interest is very high/ higher than on a personal loan
