unit 3 personal business and finance

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Types of borrowing- Loans

Loans - borrowing a set amount of money which is repaid in regular instalments plus interest.

Advantages 

  • Conveniant and assesable- easy
  • lower rates of interest
  • bank loans offer tax benifits - tax relief
  • Non profit sharing

Disadvantages 

  • lengthy application process - bank verification
  • Banks might not grant the loan
  • Preference to a running business not new
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Types of borrowing- Overdraft

Overdraft- Being able to withdraw more money than what is in your account.

Advantages 

  • you are able to spend more money than you dont have.
  • you can set a limit therefore there wont be a huge bill.
  • Ensures no late payments
  • less paperwork than long term loans
  • Flexible - take money when required

Disadvantages 

  • risk of seizing - if fails to meet payments.
  • interest rates - therefore charges much higher
  • Finance provider can ask for money back
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Types of borrowing- Mortgages

Mortgages- A long term loan (usally 20-30 yrs) to find the purchase of a property.

Advantages

  • suitable for people buying their first or new house.
  • cost effective way of borrowing
  • easy to repay - doesnt have to be all in one go
  • allows for tax benifits

Disadvantages

  • pay more than borrowed
  • have to pay legal fees, insurance fees etc.
  • affected by loss of property value 
  • rates are unpredictable and could cause more interest
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Types of borrowing- Credit cards

Credit cards - Can purchase goods immediatly and pay for them at a later date. (usally within 30 days)

Advantages 

  • Fast and easy to use
  • more protectoon than debit card
  • you can borrow for free as long as you pay before the offer ends
  • can have incentives such as cash back, loyalty points or air miles

Disadvantages

  • can cause a lot of interest if you dont pay off your balance
  • overuse - revolving credit makes it easy to spend too much
  • need to make sure you recive proper credit for incorrect or fraudulent charges
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Types of borrowing- Payday loans

Payday loans - Small loans available to pay for items whilst waiting for the next payday.

Advantages

  • the cash is sent out quick
  • you can apply online at any time
  • they dont require a credit report
  • allows you to be independant when young

Disadvantages

  • limit to how much you can borrow (usally up to £1000)
  • there is a high interest rate
  • less transparecy and consumer protection- fraud
  • need checking account and a steady income
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Types of borrowing- Hire purchase

Hire purchase - allows you to use an item and pay for it in regular instalments.

Advantages

  • made up in instalments - conveniant, dont have to pay upfront
  • you can choose a fixed term and a deposit that fits your budget
  • you can use the goods while purchasing them.

Disadvantages

  • you are within a fixed contract which means your not protected if you become bankrupt.
  • may encourage people to overspend and buy on impulse.
  • goods are more expensive compared to cash buying
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