Intro to Loans and Credit

Money and Math: An Intro to Loans and Credit

Watch the video and listen for the definitions to your 3 key terms. https://www.youtube.com/watch?v=fuiiJuB7tJs

Key Terms and Definitions

Principal

the money you initially borrowed and have agreed to pay back

Interest

the cost of borrowing the principal

(can be a fixed or variable rate)

Term Rate

the amount of time given to pay back a loan

(the shorter the term the faster the loan will be paid back, the longer the term the more interest you will eventually pay)

Benefits of Short-Term Loans

• they typically have lower interest rates

• because they're paid off quicker the borrower pays less in interest

Let's Practice

• Imagine you're buying a new car and you take out a five year loan of $20,000 at a fixed interest rate of 5%.

• You agree with the lender to make regular monthly payments.

• Now let's google "car loan calculator" and input the numbers.

• How much do you pay in total? And how much of that is interest? Figure this out before looking at the answer below.

• If you said a total of $22,645 total and $2,645 in interest you were correct!

Your Turn

• Let's imagine you have a line of credit of $30,000 to buy a car.

• Using cars.com find a vehicle you'd like to purchase and record the cost of the vehicle on your worksheet.

• Then use the car loan calculator to determine the total cost of your loan at a fixed rate of 6%. Record these numbers on your worksheet.

Multiple Choice

If my credit score is low at a 600, should my interest be high or low

• High Interest
• Low Interest

Multiple Choice

The longer the loan term the less total interest you pay.

• False

• True

Multiple Choice

Interest can be defined as:

• a charge for lending money

• the amount owed for borrowing money

• the amount added into your savings account when opening a bank account

• a charge for convenience of accessing money in your bank

Multiple Choice

This is the form you must fill out before going to college in order to get aid from the government to pay for college

• FAFSA
• FASAF
• FASFA
• AFSAF

Multiple Choice

A personal loan is ....

• principal that banks lend to businesses

• principal that banks lend to an individual business

• principal that banks lend to an individual person

• principal that banks lend to buy a car

Multiple Choice

I don't owe the bank any more money because I've .... my loan.

• defaulted on

• paid off

• computed

• applied for

Multiple Choice

My friend offered the bank his house as .... when he needed a loan.

• collateral

• debt

• term

• tenure

​Installment Loans used to finance a specific purchase for a specific amount of time.

Regular payments are made to pay the interest and the principal.

​Revolving Credit an open line of credit that can be used for any purchases as long as you’re under the credit limit.

Payment amounts vary each pay period based on the size of the debt.

​Secured Debt debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn’t make payments

​Unsecured Debt debt is not tied to a specific asset; there is no collateral that can be repossessed if borrower defaults

​Variable-Rate interest rate can change during the duration of the loan based on the prime rate or an index rate

​Fixed-Rate interest rate remains constant during the duration of the loan

Match

Match the following

• principal

• interest

• term

the original amount of money in a loan

the additional price paid to borrow money or the cost you are charged for a loan

the agreed upon timeframe for a loan to be paid in full

• the original amount of money in a loan

• the additional price paid to borrow money or the cost you are charged for a loan

• the agreed upon timeframe for a loan to be paid in full

Multiple Choice

Revolving Loans

​

​ ​

• Credit Card

• Auto loan

• Mortgage

• Payday Loan

• Personal Loan (from a bank)

Multiple Select

Installment Loans

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​

• Auto loan

• Mortgage

• Payday Loan

• Credit Card

• Student Loan (federal)

Multiple Choice

The amount of money that the lender lends to the borrower is called ....

• principal

• tenure

• default

• collateral

Multiple Select

Installment Loans

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​

• Auto loan

• Mortgage

• Payday Loan

• Credit Card

• Student Loan (federal)

Multiple Choice

The bank will take possession of your car if you .... your car loan.

• pay off

• default on

• endorse

• compute

Multiple Choice

Revolving Loans

​

​ ​

• Credit Card

• Auto loan

• Mortgage

• Payday Loan

• Personal Loan (from a bank)

Multiple Select

Secured Debt

​ ​

• Auto loan

• Mortgage

• Credit Card

• Payday Loan

• Personal Loan (from a bank)

Multiple Select

Unsecured Debt​

​

• Credit Card

• Payday Loan

• Personal Loan (from a bank)

• Student Loan (federal)

• Auto loan

Multiple Select

Variable Interest Rate

​ ​

• Credit Card

• Personal Loan

• Auto loan

• Mortgage

• Payday Loan

Multiple Select

Fixed Interest Rate

​ ​ Student Loan (federal)

• Auto Loan

• Mortgage

• Credit Card

• Payday Loan

Open Ended

Why do people sometimes use credit to pay for items instead of just using cash?

Poll

When applying for credit, is it preferable to receive a low interest rate or a high interest rate?

• Low interest rate is preferred

• High interest rate is preferred