Different types of borrowing

?
Advantages of Overdraft
Interest is charged only on the amount outstanding.
Can be paid off without penalties.
An overdraft facility can be prearranged and only used if needed.
Provides a short term solution to cash flow problems.
1 of 12
Disadvantages of Overdraft
When used, interest charges are often high.
Additional penalty charges for going over a pre-arranged limit are often very high.
Not the cheapest form of borrowing.
The ease with which these can be obtained could encourage overspending.
2 of 12
Advantages of Personal Loans
Regular, pre-agreed payments make planning and budgeting easy.
As a general rule these would only be issued to individuals who can prove their ability to make the repayments.
Useful when looking to purchase a specific item of medium to high value
3 of 12
Disadvantages of Personal Loans
May have to be secured against an asset which means if payments are missed the asset may be taken to cover the outstanding debt.
Not really suitable for short term loans.
4 of 12
Advantages of Hire Purchase
Spreads the cost of an expensive item over a period of time.
Credit is secured against a specific item.
Often allows a customer to afford something now that they could not otherwise afford.
5 of 12
Disadvantages of Hire Purchase
Interest charges may be higher than other traditional loans.
Ownership of the asset may legally be kept by the seller until the final payment is made.
Agreements can be manipulated to make a purchase seem deceptively appealing
6 of 12
Advantages of Mortgages
Allows the customer to spread the cost of expensive items over a long period of time.
Interest rates, depending upon the mortgage deal, can sometimes be fixed or tracked against a standard rate of interest reducing the risk of fluctuations
7 of 12
Disadvantages of Mortgages
Interest payments, although sometimes fixed for a short period of time, can vary - this seriously affects the borrower's ability to repay or meet other expenses.
Failure to meet repayments may lead to a loss of a home and seriously affect an individual's
8 of 12
Advantages of Credit Cards
The credit card holder can pay above the minimum rate if they wish and hence speed up the rate of repayment and reduce interest incurred.
Can be used for items of multiple sizes and value, to a limit, without the need to secure against an asset.
Provides
9 of 12
Disadvantages of Credit Cards
Can encourage overspending, sometimes on unnecessary purchases, and can lead to debt problems.
Interest rates are often higher than on a personal loan.
10 of 12
Advantages of Payday Loans
Help solve immediate short term cash flow problems.
Relatively easy to secure
11 of 12
Disadvantages of Payday Loans
Interest rates are very high and the cumulative amount to be repaid can quickly spiral out of control.
12 of 12

Other cards in this set

Card 2

Front

Disadvantages of Overdraft

Back

When used, interest charges are often high.
Additional penalty charges for going over a pre-arranged limit are often very high.
Not the cheapest form of borrowing.
The ease with which these can be obtained could encourage overspending.

Card 3

Front

Advantages of Personal Loans

Back

Preview of the front of card 3

Card 4

Front

Disadvantages of Personal Loans

Back

Preview of the front of card 4

Card 5

Front

Advantages of Hire Purchase

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Business resources:

unit 3
See all Business resources »See all Finance resources »