Financial Terms: Loans and Credit

Overdraft

• Allows you to withdraw money from your current account even if you don't have enough funds.
• Can be useful for short-term needs like a cash shortage before payday.

Personal loan

• Allows you to borrow a fixed amount of money for a specific purpose.
• Repayment is made in regular installments with interest.
• Suitable for funding high-priced items like a car or home improvements.

Hire purchase

• Allows you to use an item immediately while paying for it in installments.
• Ownership of the item remains with the seller until all installments are paid.
• Suitable for one-off or infrequent purchases like a TV or fridge freezer.

Mortgage

• A long-term loan used to finance the purchase of assets, typically paid over a long period (e.g., 25 years).
• Secured against an item like a house.
• Suitable for assets that retain value over time and cannot be paid for outright.

Credit card

• Payments for goods made with a card.
• Payment can be made at the end of a set period (typically a month) or gradually over time.
• Minimum monthly payments are a percentage of the credit card balance.
• Suitable for high-priced goods or services (like holidays), managing expenses during periods of higher spending (like Christmas), or as a convenient and safe alternative to cash.

Payday loan

• Short-term financing option used to bridge a gap between paychecks.
• Usually available for small amounts at very high interest rates.
• Suitable for emergencies and cash shortages.