O-LevelCommerceCredit7100/22 · May/June 2020 · Q314 Marks

Fig. 3.1 shows types of credit used by consumers in 2019. Fig. 3.1 Types of credit used by consumers in 2019 Use Fig. 3.1 to help you answer the following questions.

(a)(i)Calculate the total percentage of credit for store cards and hire purchase in 2019. Show your working.[2]
(a)(ii)Calculate the amount of credit for credit cards in 2019. Show your working.[2]
(b)Explain one reason why many consumers prefer not to use informal credit.[2]
(c)A consumer wants to buy a car. She is considering using a credit card or a bank loan to pay for the car. Discuss both options. Which would you recommend? Give reasons for your answer.[8]

This question uses a diagram from the original paper, which isn't shown here. Open the full paper from the past papers archive to see it.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

[2] Total percentage credit = 21% (2) Method 9% + 12% (1)
[2] Amount of credit = $132 bn (2) Method 30% of $440 bn = 0.3 × $440 bn (1)
[2] May not be available to consumer (1) if they are not a known/regular customer (1)
[2] The consumer will have to remember to pay (1) otherwise they might not be able to receive the credit again (1)
[2] The consumer is dependent on going to the same store (1) where prices might be higher (1)
[2] As there is no written agreement (1) can lead to lack of clarity/disputes about the amount owed (1)
[2] May not be able to afford it (1) and do not want to go into debt (1)
[8] Credit card: The cost of the car affects whether she can use a credit card to pay for it, because her credit limit may not be high enough.
[8] Also, the seller may not accept credit card payments.
[8] If the amount owed to the credit card company is not repaid before the next credit card statement, high interest rates can be charged which would make the car more expensive.
[8] Some credit cards might have a special offer of 0% interest on purchases for an introductory period of time, or offer some reward scheme as an incentive to use it.
[8] There is legal consumer protection (Consumer Credit Act 1974) when paying with a credit card if, for example, a car dealer went out of business without delivering a new car.
[8] Bank loan: May have a cheaper interest rate than a credit card.
[8] Can agree to pay back over different time periods, e.g. 12, 24, 36 months which can help spread payments.
[8] May be able to obtain the full amount of the cost of the car if it's more than the credit card limit.
[8] Evaluation: Banks lend only to people who can prove they can repay their loan and banks also make sure that to cover their losses in the event of customers defaulting.
[8] It depends mostly on how much the consumer wishes to borrow and when she can repay the money.
[8] If she is able to pay back without incurring high charges, then the benefits of consumer protection and possible credit card rewards might make it the better option.