2.2 Flashcard Review

Front

What is a PRIVATE loan?

Back

A PRIVATE loan is a type of loan that often requires payments while you are still in school and may have varying interest rates.

Front

What are the three main components of any loan?

Back

The three main components of any loan are the principal, the interest rate, and the loan term.

Front

What is the formula for compound interest?

Back

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the time in years.

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What happens during a grace period for a loan?

Back

During a grace period, no payments are required, but interest may still accumulate and be added to the loan balance.

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What is APR?

Back

APR stands for Annual Percentage Rate, which is the annual rate charged for borrowing or earned through an investment, including any fees or additional costs.

Front

What is APY?

Back

APY stands for Annual Percentage Yield, which reflects the total amount of interest earned on an account based on the interest rate and the frequency of compounding.

Front

Which is usually higher, APR or APY?

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APY is usually higher than APR because it takes into account the effects of compounding.

Front

How do you calculate the loan balance after a grace period?

Back

To calculate the loan balance after a grace period, use the compound interest formula to find the accumulated interest and add it to the principal.

Front

What is the significance of a fixed interest rate?

Back

A fixed interest rate means that the interest rate remains the same throughout the life of the loan, providing predictable monthly payments.

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What does it mean to have flexible monthly payments?

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Flexible monthly payments allow borrowers to adjust their payment amounts based on their financial situation, which can help manage cash flow.