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PFP Topic 4: Cash & Credit Management (Bankruptcy (How to be…
PFP Topic 4: Cash & Credit Management
Types of Deposit Accounts
Saving cum checking Account (CA)
Bank charges for issue of cheque books
Credit line subject to bank approval
Interest charged on overdraft is v high!
Earns more interest than saving acc
higher bank charges than savings acc
easy access to cash via cheques/ ATM/ NETs
Fixed Deposit Acc
Earns highest interest out of the 3 acc
available in foreign currency - ACU (Asian Currency Unit)
For ACU deposits, may gain or lose from foreign currency movements
Interests earned on ACU may be offset by foreign currency depreciation
Fixed sum of money for a fixed period @ an agreed interest rate
Penalty imposed for premature withdrawals
Savings Acc
Easy Access to cash via ATM/ NETs
Earns v low interest
few charges/ fees
withdrawals limited to acc balance (no credit line)
Min. balance penalty imposed
For Net Return (%) = interest earned - Charges / Average monthly balance
Types of Credit
Open Account Credit
Charge Cards
Credit Cards
Bank Overdraft
Loans
Personal Loans
Education Loans
Car Loans
Housing Loans
Classification of Loans
Secured V Unsecured Loans
Secured - collaterised by some forms of assets, Unsecured - loan does not have any collateral pledged
Examples for secured are : Housing Loans & Car Loans, unsecured is Credit card financing & bank overdraft, higher risk so charge with higher ir & stricter conditions
Secured - If loan not repaid on timely basis, lender can seize the asset pledged
Unsecured - '' lender take legal action with borrower directly
Fixed & variable Rate
ST Loans V LT Loans
ST Loans to meet current payment & LT Loans for purchase of major assets
Lump Sum Repayment
Simple Interest Method
EIR = quoted interest rate
Discount Method
Interest is charged upfront, therefore, actual loan amount (usable assets) is lesser, EIR > quoted ir
SHORT TERM LOANS - require a lump sum payment
Loan Instalments
In case whr loan is on a flat basis
Flat Basis is interest charges based on the loan original amt over entire loan period
Ignores that part of loan is repaid each time an instalment is made
LT LOANS - repaid in a series of instalments
Rule of 78 - computes the amt of interest rebate the borrower is entitled to
Types of credit card charges
Fee & Interest Charges
Fee on withdrawal of cash at ATMs using credit card
Late payment charges
Charges incurred when there is no repayment of min. requirement
Annual Subscription Fee
Financing charges
24% pa. on unpaid credit card balances
Bankruptcy
is a process which the borrower is unable to repay debts of at least $15k/ $10k. (then can be sued)
Official Assignee helps realise bankrupt's asset for distribution to creditors & to assist bankrupt to obtain a discharge
How to be discharged from bankruptcy
Discharge by certificate of OA
Discharge by the Court
Annulment of bankruptcy order is possible when debts r paid in full
Offences is punishable with imprisonment of not exceeding 2 yrs or fine not more than $10k or both if bankrupt failed to submit income & expenditure statement
Why people avoid being bankrupt?
Unable to manage a business/ becomes director of a company
Unable to travel overseas
Social Stigma, hard to find jobs
Debt repayment scheme is a voluntary pre-bankruptcy scheme to assist debtors who have debts of not >$100k & are employed, earning a regular income to help them repay debts in not more than 5 years