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Managing Per Finance
| Term | Definition |
|---|---|
| Overdraft | The facility to overspend on a current account up to an agreed sum |
| Personal Loan | 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 |
| Hire Purchase | Spreading the cost of a purchase over a pre agreed period of time |
| Mortgage | A long-term loan to fund the purchase of an expensive item that will hold value for a long time |
| Payday Loan | A short term loan, for a relatively small amount of money, to be repaid upon receipt of the lenders next wage |
| Two features of an Overdraft | (1)The individual in effect can withdraw money from the account that is not there meaning they go overdrawn or in the red (2)The bank can call it in at any time (3)Only available from a current bank account |
| Two features of Hire Purchase | (1)The consumer gets to have the item straight away and pays in monthly instalments (2)The item technically remains owned by the seller until all instalments have been paid |
| Two features of a Mortgage | (1)Most common method of buying a house (2)Payments are made over a long time e.g. 25 years (3)Normally require a substantial deposit e.g. 20% of house value |
| Two features of a Personal Loan | (1)May be secured against an asset and if there is a default on repayments the asset can be taken (2)Financial institutions can vary interest rates depending upon the amount of risk placed on the loan |
| Two features of Pay Day Loans | (1)Rates of interest are high(2)Eases short term cash flow problems such as an inability to pay the rent |
| Advantages of Overdraft | (1)Only borrowed when required allowing flexibility (2) Only pay for the money borrowed (3) Quick and easy to arrange (4)No charges for paying off the overdraft |
| Advantages of Personal Loans | (1) Quick and easy to secure (2)Fixed Interest Rates allow individuals to budget (3) Improved cash flow |
| Advantages of Hire Purchase | (1) Immediate use of the item (2) Spreads cost over a period of time (3) Fixed instalments |
| Advantages of a Mortgage | (1)Makes it possible to buy items such as a house which would not be feasible otherwise (2)Spreads the cost of an asset over a long period of time (3)Changes can be made to find the best deals on a semi-regular basis depending upon mortgage chosen |
| Advantages of Payday Loans | (1)Solves short term cash flow problems (2) Quick access to funds |
| Disadvantages of an Overdraft | (1) The bank can call it in at any time (2)Interest payments tend to be variable making it more difficult to budget (3) Banks may secure the overdraft against an asset therefore there is a risk of repossession |
| Disadvantages of Personal Loans | (1) Interest must be paid regardless of financial situation (2) Can be charged an early repayment fee (3) Often expensive interest payments |
| Disadvantages of Hire Purchase | (1)Additional costs e.g. interest (2) Payments have to be made or item will be repossessed |
| Disadvantages of a Mortgage | (1) Payments may be subject to change e.g. if interest rates change (2) Normally require a substantial deposit e.g. 20% of house value (3) Risk of repossession if default on payments |
| Disadvantages of Pay Day Loans | (1) High rates of interest (2) Need to be repaid quickly (3) Can escalate out of control if not repaid quickly |
| Individual Savings Accounts (ISAs) | An ISA is an Individual Savings Account. They allow UK taxpayers to benefit from tax-free interest on their savings - so the interest you earn is all yours. |
| Premium Bonds | A government incentive for individuals to save Bonds are sold by the National Savings and Investment Bank Each month bonds are entered into a prize draw with the opportunity to win up to £1 million |
| Pension | Saving plans whereby the individual makes regular contributions to a pension policy The objective is to plan for the future so that an income is available upon retirement |
| Corporate Bonds | A bond is a form of debt issued by companies to raise money, in other words they are “IOUs” and used as investment options. You lend the company money and they owe you money back at a set date, but they pay interest on it |
| Gilts | Issued by the government and when buying them, you are effectively lending money to the government, which promises to pay back the amount in full at a set date, along with interest |
| Insurance | Insurance helps you protect yourself against risks like a house fire, car accident or burglary. You can also get insurance that pays you money if you get too ill to work or to provide for your family if you die. |
| Two features of Car Insurance | (1) Damage or theft (2) Damage to a 3rd party (3) Hire car (4) 3rd party or fully comprehensive |
| Two features of Home Insurance | (1) Items replaced if stolen (2) Repairs paid for if caused by accidents e.g. storms or flooding |
| Two features of Life assurance | (1) Small regular monthly payments (2) Payments made in the event of death |
| Two features of Life Insurance | (1) Large lump sum (2) Lump sum paid in the event of death |
| Two features of Travel Insurance | (1) Medical expenses paid when abroad (2) Holiday cancellation costs (3) Lost baggage |
| Two features of Pet Insurance | (1) Vets fees are covered (2) Operations (3) Annual health check |
| Two features of Health Insurance | (1) Annual health check (2) Private consultations (3) Accommodation and nursing care |
| Advantages of Car Insurance | (1) Pay for repairs to own car and 3rd party (2) Reduced premiums for safer drivers |
| Disadvantages of Car Insurance | (1) Premiums can be high for groups deemed high risk – young and old(2) Excesses often apply |
| Advantages of Home Insurance | (1) Covers items when outside the home e.g. laptops (2) Replacing stolen/damaged items can be very expensive |
| Disadvantages of Home Insurance | (1) Excesses often apply (2) Compulsory for some mortgages |
| Advantages of Life Assurance | Compensates for the loss of a bread winner |
| Disadvantages of Life Assurance | Some policies are not index linked |
| Advantages of Life Insurance | Meets compulsory requirements of some mortgages |
| Disadvantages of life Insurance | (1) Once money is spent its gone (2) May need to be used to pay off a mortgage |
| Advantages of Travel Insurance | (1) Repatriation cost (2) Millions of £s of medical expenses can be covered |
| Disadvantages of Travel Insurance | (1) Excesses often apply (2) May need to meet replacement costs and then claim these back |
| Advantages of Pet Insurance | (1) Vets fee/operations can be expensive (2) Peace of mind |
| Disadvantages of Pet Insurance | (1)Excesses often apply (2) Exclusions may apply |
| Advantages of Health Insurance | (1) May be seen quicker than on the NHS (2) May include drugs or treatments not covered on NHS |
| Disadvantages of Health Insurance | (1) NHS provides comprehensive health cover for all(2) Cost |
| Advantages of ISAs | (1) No tax on the interest earned from the cash in an ISA (2) No need to declare cash ISA on tax return (3) Instant access cash ISAs offer a convenient way to save at a good interest rate while retaining easy access to cash. |
| Disadvantages of ISAs | (1) An Instant Access Cash ISA will offer a lower interest rate than an ISA that limits access to cash (2) Fixed rate ISAs offer a better return but lock your cash in so you cannot access it (3) Banks can impose a penalty for transferring ISAs |
| Advantages of Premium Bonds | (1) Safe way to save (2) Premium Bonds will not lose their value (3) Tax free returns (4) Instant Access (5) The potential to win big (£25 to £1 million) |
| Disadvantages of Premium Bonds | (1) Only available for over 16's (2) You can only hold a maximum of £50 000 (3) No Interest (4) Low odds of winning |
| Advantages of Gilts and Corporate Bonds | (1)Regular fixed returns (2) Spreads risk across a range of markets |
| Advantages of Shares | (1) Share prices fluctuate offering a better reward (2) As part owners in the business there may be additional benefits e.g. discounts |
| Disadvantages of Shares | (1) There is no guarantee of any reward (2) All investment can be lost (3) Share prices fluctuate so high risk |
| Advantages of Pensions | (1) Encourages individuals to save throughout their working life for retirement (2) long term savings plan with tax relief |
| Disadvantages of Pensions | (1) Final outcome is difficult to predict (2) Movement between jobs may mean that one policy stops and another starts |
| Advantages of Deposit and Savings Accounts | (1) Interest is earned on positive balances (2) Accounts can require the deposit of an amount each month forcing the holder to follow a savings plan |
| Disadvantages of Deposit and Savings Accounts | (1) Interest earned is taxed (2) Interest paid on saving is less than on borrowing. This is not a benefit if you have borrowed money. |
Created by:
durquhart1
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