You can get a mortgage from:
- The One Account
- Alliance and Leicester
- First Direct
- First Plus
- Scottish Widows
- Standard Life
As you can see lots of mortgages give different things e.g. the One Account doesn’t give 7/8 things that are on the list. However Standard life mortages and Direct mortgages have 7/8 ticks in the boxes.
In real life you would use a mortgage for when you buy a property as a mortgage is a loan for buying property as it is so much money. For exampleif you want to buy a house for £250,000 then you are most probably not going to have that much money in your back pocket!! This is a circumstance where you would take out a mortgage to pay for it.
The advantages of mortgages are that they are very flexible as you can see above and that there aere lots of different types. Also you can have them to spread out across 25yrs ,40yrs or 30yrs however long you want.
The disadvantages of mortages are that interest is a lot on mortgages and you can only get 3 or 4 times your salary. Also you have to pay it back and the mortgage grows with the added interest as the years go by.
There are five different types of mortgage. These are:
- You always pay the lenders current rate and there are no hidden charges.
- You may benefit from rate reductions.
- You are unlikely to have any arrangement fees or early repayment charges.
- May be available with cashback.
- Budgeting may be difficult
- Cashback schemes may have early repayment charges.
- You are not protected from rate increases.
- Similar to variable
- For a specified time the rate charged will be a certain percentages above or below the Bank of England base rate.
- Payments more accurately reflect underlying interest rates of the time.
- You may benefit from immediate rate reductions.
- Might have to pay an arrangement fee
- Budgeting could be difficult
- Not protected from increased rates
- Follows base rate increses
- early repayment charges
- cashback has early repayment charges
- No hidden extra costs
- Benefits from rate reduction
- Not have to pay an arrangement fee
- Early repayment charges
- Budgeting is difficult
- Rate will return to a higher variable rate at the end of the scheme.
- Maximum cost is known
- Helps you to budget
- You may benefit from rate reductions below capped rate
- Early repayment charges
- Arrangement fees
- Has a higher rate of interest than a fixed rate
- Helps you to budget
- Exact cost known
- Protected from rate increses
- Early repayment charges
- Arrangement fees
For most of these different mortgages there are early repayment periods and makes it hard to budget. However I think that the best mortgage is fixed as you know the exact cost of what you have to pay back.
Loans
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the ' and the '. The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular instalments, to the lender. This service is generally provided at a cost, referred to as interest on the debt.
If you want a new television and you can’t afford it then if you wanted the TV bad enough then you would take out a loan to pay for it if you can’t afford it. (Not recommended. Just an example. ☺)
Abbey has a loan which:
- Is quick and easy to apply
- Get a decision in minuits
- Money caould be available within 24hrs
Benefits from Abbey are:
- Great rates (7.9% APR)
- Borrow anything from £7,500 to £25,000
- Pay it back from 1 to 8 years
- Repayments are fixed
- You don’t have to be a current Abbey customer to apply.
Advantages of loans are that when you need more money you can take out a loan and it will help you out. However the disadvantages of loans are that you can only take out a certain amount of money at a time and you have to pay more back than you have borrowed. This may get you into even more trouble if you can’t pay it back.
Credit Cards
A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in that the credit card issuer lends the consumer money rather than having the money removed from an account.
The major credit cards are:
- Mastercard
- American Express
- Visa
- Eurocard
Abbey Credit Card
- Balance transfer credit card
- 0% p.a. on your balance transfers for 12months
- 0% p.a. on your card purchases for 3months
- after 3 months there is a typical rate of 15.9% APR
- no annual fee
- typical rate of 10.9%
- no annual fee
- ‘attractive’ interest rates
- tailored credit limit to suit your needs
- 24hr customer service helpline
- credit card cheque book
- chip and pin security
- free fraud protection including things that you buy online
The advantages of a credit card are that when you really need money then you will be able to borrow it from the bank and sort your problem out. However the disadvantage of credit cards is that there is a credit limit and so you can onkly take a certain amount of money off the bank and also at the end of the month you get a statement saying how much you will have to pay back to the bank and your debt may spiral out of control if you take out another loan to cover that loan that you got from the bank.
Overdraft
Overdraft: Banks will often allow you to overdraw your current account. If you have arranged for an overdraft facility on your account you will be charged an authorised overdraft rate - the rate of interest that you will pay on your overdrawn balance if you remain within your authorised limit. If you have not arranged an overdraft facility or exceed your authorised limit you will be charged interest at the unauthorised overdraft rate.
At Halifax these are the overdraft rates:
This shows that when you go over your limit from your credit card then if you are a student in a certain current account then there is 0% EAR. However if you get a high interest current account then you will get 15.9% EAR.
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Store card
Definition: a financial transaction card associated with a retailer or group of retail stores which can be used only for purchases from the retailers concerned.
John Lewis has a partnership card with Waitrose that you can use in the stores as credit cards.
This is what the Partnership card can do for you:
-
Use your partnership card™ to earn points in over 25 million outlets worldwide.
- Earn 1 point for every £1 you spend at John Lewis (instore, online or by catalogue) or Waitrose shops or at Ocado.com
- Earn 1 point for every £2 you spend everywhere else.
- Every 500 points you earn is worth £5, which we'll convert into vouchers for you.
These are some of the features:
- 0% on purchases for 6 months from account opening.
- 0% on Balance Transfers and Account Card transfers for 6 months from account opening.
A 2% Balance Transfer fee applies (minumum £5, maximum £50).
- If you transfer your total Account Card balance during application, you will not incur a Balance Transfer fee. Your account will then be closed.
-
A typical 15.5% APR (variable)
The advantages of this borrowing method is that you can use the card in store and get points for every £1 that you spend and there are lots of other extra features.
The disadvantage of this borrowing method is that you have to pay a 2% balance transfer rate and it has a variable typical 15.5% APR so it can change.
Hire Purchase
Definition: It is a procedure for purchasing goods under which the purchaser pays a deposit on receipt of the goods followed by a number of instalments until the debt is cleared. The goods do not become the property of the purchaser until the last instalment has been paid. In the event of the default of the purchaser in respect of the instalments, the firm can resume possession of the goods in question.
A real life example of this is when you want to buy a television and you can’t afford it then you can go to Bright House and pay a certain amount a week to get the television.
Advantages for hire purchase is that you can get something that you wouldn’t normally be able to afford you can get and pay in sections
A disadvantage of hire purchase is that you cannot sell the item until it has all been paid for. Another disadvantage is that the product never belongs to you until you have paid the firm back in full and hence if you miss a payment, the organisation can take the product back.
Recommendations
If you are buying a house the best type of borrowing is a mortgage. Also if you need to borrow money take out a loan as if you have a credit card then you will be more tempted to use it for things that you don’t really need.
If John wanted to borrow a few £1000 then he should take out a loan. This is the best way as if you get a credit card then you could go into more debt that you want to. With a loan you only have a certain amount of money that you can spend and you can’t go over that rate unless you take out another loan which will get you even further into debt. You also could get an overdraft from your bank for this amount.
Bibliography
All definitions from when typed define:
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(John Lewis Partnership card)
Abbey National leaflets
