Consumer Credit : Practice Questions

Which of the following is the most direct benefit of maintaining a good personal credit record?

Which of the following consumer credit types typically involves receiving a lump sum upfront that is repaid in fixed monthly installments over a set period, often used for larger, planned expenses?

Ms. Cheung wants to purchase a new car for $$HK\$200,000$$. She has $$HK\$50,000$$ for a down payment and needs to finance the remaining $$HK\$150,000$$ over 3 years. She prefers a predictable repayment schedule and a generally lower interest rate due to the secured nature of the loan. Which of the following consumer credit options is most appropriate for Ms. Cheung?

Which of the following is generally considered an unsecured and revolving credit facility?

Mr. Lam needs a short-term credit facility to cover unexpected business expenses for a few weeks, with the flexibility to repay as soon as his clients pay him. Which type of consumer credit would generally be most suitable for his situation?

Explain how a bank overdraft typically provides flexibility for consumers managing fluctuating short-term cash flows.

Mr. Wong has a good personal credit record. Explain two distinct ways this good record can financially benefit him when he applies for a new mortgage loan.

Explain one key difference between a bank overdraft and a credit card in terms of how interest is typically charged.

Mr. Lee is planning to buy a new household appliance that costs HK$8,000. He is considering using consumer credit to finance this purchase.

(a) Briefly explain what consumer credit is.

(b) Mr. Lee is deciding between using his existing credit card and applying for a personal loan for this purchase. Discuss one advantage and one disadvantage for Mr. Lee if he chooses to use his credit card instead of a personal loan.

Mr. Cheung, a university student, has just started his part-time job and receives a monthly salary. He faces two distinct financial needs this month:

Financial Need 1: He needs to buy a new laptop for his studies, which costs HK$7,000. He plans to repay the amount over 6 to 12 months.

Financial Need 2: He unexpectedly ran out of cash and needs HK$500 to pay for textbooks urgently until his next salary payment in two weeks.

(a) For Financial Need 1, suggest the most appropriate type of consumer credit from the following options: bank overdraft, credit card, personal loan. Justify your suggestion with one key characteristic.

(b) For Financial Need 2, suggest the most appropriate type of consumer credit from the same options. Justify your suggestion with one key characteristic.

(c) Regardless of which credit type Mr. Cheung uses, explain one long-term benefit of maintaining a good personal credit record.