Kelvin Peng applied successfully for a VB Games store card six months ago, after considering the advantages offered by using the card. Fig. 3.1 shows a store card statement from VB Games to Kelvin Peng that he received in the post. [Figure 3.1] Use Fig. 3.1 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [2] (i) $12 (1)
2. [2] (ii) $688 (1)
3. [2] Kelvin's account will go into arrears (1) charges/interest will be added for each missed payment (1) increasing the debt owed/amount to pay (1) if Kelvin refuses to pay, the account will be defaulted on (1) store card will be cancelled (1) or reduce the credit limit (1) he will be stopped from using the card/not able to purchase (1) and the store may take Kelvin to court (1) may have to pay a fine (1) the court may employ a debt collection company to collect debt (1) and Kelvin will have a poor credit record (1)
4. [3] Yes - Can be kept for reference (1) shows written record of transactions (1) if there is a dispute (1) can be used to show proof of address (1) is delivered to your door (1) no need to collect from post office (1) which can be time-consuming (1) cheaper than needing transport to pick statement up/no transport costs involved (1) if sent by registered post/recorded delivery/poste restante (1) it is more secure (1) can be tracked (1) reducing chances of statements being lost/stolen (1) express mail/express delivery (1) will proved a fast/quick service (1)
5. [3] No – better to send them online/email (1) can be seen immediately/faster (1) has proof of sending it (1) post is slow (1) as there are often delays in the post (1) can be lost/stolen/damaged in the post (1) wrongly delivered (1) after the minimum payment is due (1) which can lead to Kelvin paying more/interest (1) there is no tracking (1) Kelvin may forget to check mailbox (1) and also cuts down on the environmental impact (1) of printing millions of sheets of paper every month (1) no need for Kelvin to file paperwork (1)
6. [8] A loan is a fixed amount of borrowing from a bank over a set term with regular repayments.
7. [8] An overdraft allows you to borrow money as and when you need it up to a limit agreed between you and the bank.
8. [8] Loan: Would usually be repaid by monthly instalments over a set period of time, with a fixed rate of interest – this will make it easier for Kelvin to budget
9. [8] He will be able to decide how long he would take to repay the loan – if he chose say, five years, the guitar might have increased in value so interest repayments are covered
10. [8] It is a medium/long-term source of finance usually for a large amount so Kelvin will be able to borrow enough money for an expensive guitar
11. [8] He would be able to borrow more than he currently has with a store card so could buy a more expensive guitar than the $700 credit that he has on his store card
12. [8] There is fixed interest to be paid – this will end up costing Kelvin more money than if he had saved up and paid cash for the guitar
13. [8] If Kelvin misses loan repayments, he could face additional charges or legal action – this could affect his credit history and his ability to obtain finance in the future
14. [8] Overdraft: An overdraft is flexible – would enable Kelvin to spend more than he has in the bank, up to an agreed limit.
15. [8] They are quick to arrange – Kelvin can start using the guitar straight away
16. [8] Interest is charged on the amount overdrawn – this will usually be higher than a loan, costing Kelvin more money
17. [8] Kelvin will usually only be able to get an overdraft from the bank where he holds a current account – so this makes it difficult for him to shop around for the best rates.
18. [8] Evaluation: Kelvin will need to look at his current financial situation and his ability to repay the loan. He will have to think carefully about his payment timeline, his payment amounts, and how that relates to his expected income throughout the loan. We are not told how much the guitar costs, but as it is expensive and therefore costing a large amount of money, then loan is the recommended option. Despite loan being the better option, there are alternative options that she might consider instead. For example, a 0% interest rate on a credit card where he can borrow up to the credit limit and pay no interest.