Types of credit Flashcards
Name three types of credit.
A loan.
Overdraft.
Trade credit.
Venture capital.
Share capital.
What is a loan?
A sum of money that is borrowed and expected to be paid back with interest.
Is a loan long term or short term?
Long term.
What are the advantages of a loan?
It comes in one lump sum.
Flexible use.
Has lower interest rates than a credit card.
It can help build credit score if payed back well.
What are the disadvantages of a loan?
There is more eligibility requirements than a credit card.
Fees and penalties can be high.
Increased debt load.
When would a loan be used?
Mortgages, house renovations, buying a car, going to university.
What is an overdraft?
An extension to a bank account allowing more money to be withdrawn than is in the account. It is payed back either in lump sums or as installments with interest.
What are the advantages of an overdraft?
They are quick to arrange.
Cheaper than a loan.
There isn’t usually a charge for paying back early.
What are the disadvantages of an overdraft?
Less money borrowed than a loan.
Interest rates can be high.
When would an overdraft be used?
By students at uni.
Emergencies.
Is an overdraft long term or short term?
Short term.
What is trade credit?
When goods/services are provided but payed for at a later date.
Is trade credit short term or long term?
Short term.
What are some advantages of trade credit?
They are easy to obtain.
Low to no interest.
Improves cash flow.
Flexible payment terms.
What are some disadvantages of trade credit?
Risk of late payment fees.
Potential supply chain complications.
Can be expensive if payment date is missed.
