Types of borrowing Flashcards
2 Advantages of overdraft
- Can be paid off without penalties
2. Provides a short term solution to cash flow problems
2 Disadvantages of overdraft
- Interest charges are often high
2. Not the cheapest form of borrowing
2 Advantages of personal loans
- Makes planning and budgeting easier
2. Useful when looking to purchase a specific item of high or medium value
2 Disadvantages of personal loans
- Not suitable for short term loans
2. May have to be secured by an assets which could result in the loss of the asset to cover the debt.
2 Advantages of Hire purchase
- Credit is secured against a specific item
2. Allows a customer to afford something now that they could not otherwise afford
2 Disadvantages of Hire purchase
- Interest charges may be higher than other traditional loans
- Agreements can be manipulated to make a purchase seem deceptively appealing
2 Advantages of Mortgages
- Allows the customer to spread the cost of expensive items over a long period of time e.g. the purchase of a house is often spread over 25 years
- Interest rates can sometimes be fixed or tracked against a standard rate of interest reducing risks of fluctuations
2 Disadvantages of Mortgages
- Interest rates can vary
2. Penalties may be applied to early repayment
2 Advantages of credit cards
- Holder can pay above the minimum rate of they wish and speed up repayment and reduce interest incurred
- Can be used for items of multiple sizes
2 Disadvantages of credit cards
- Can encourage overspending
2. Interest rates are often higher than on a personal loan
2 Advantages of Payday loans
- Help solve immediate short term cash flow problems
2. Relatively easy to secure
Disadvantage of Payday loans
Interest rates are very high and the cumulative amount to be repaid can quickly spiral out of control
