Types of finance Flashcards
What is an overdraft?
State two advantages and disadvantages.
A facility to overspend on a current account up to a degreed sum.
+ Good way to fund short term cash shortages.
+ Gives flexibility to families.
- Interest is charged for overdrawn amount.
- The interest rate is high.
What is a personal loan?
State two advantages and disadvantages.
A set amount of money provided to an individual or couple for a specific purpose to be repaid with interest over a set period of time.
+ Quick and easy to secure.
+ Fixed interest rate allows budgeting
- Interest must be paid regardless of financial situations.
- Often expensive interest repayments.
What is hire purchase?
State two advantages and disadvantages.
Spreading the cost of a purchase over a pre-agreed period of time.
+ Consumer gets item straight away and pays monthly instalments.
+ Fixed instalments, allow cost to be spread over time.
- Until all instalments have been repaid the item is technically still owned by the seller.
- Payments have to be made or else item will be repossessed.
What are credit cards?
State two advantages and disadvantages.
Quick method to pay for things if an individual does not have cash.
+ Secure and safe (banks can freeze card if lost).
+ Very convenient ad useful for online shopping.
- Online banking (Secure connection/hackers).
- Can use card without entering pin (contactless).
What are payday loans?
State two advantages and disadvantages.
Short-term loan for a relatively small amount of money to be repaid upon receipt of lenders next wage.
+ Eases short term cash flow problems (rent).
+ Quick approval and money is transferred within an hour.
- Can escalate out of control if not repaid quickly.
- Rates of interest are high.
What is a mortgage?
State two advantages and disadvantages.
A long-term loan to fund the purchase of an expensive item that will hold value over a long time; example of buying a house.
+ Payments made over a long period of time (20+ years).
+ Purchasing a house is more possible.
- Require substantial deposit of house value.
- Payments may be subject to change.
