Personal Finance Lesson 7: Understanding Interest

A loan is

An amount of money you will borrow and pay back over time

An amount of money you will NOT

Monies that are a gift

An amount of money that can earn interest, depending on how long it takes to pay it back

The priciple of a loan can be defined as

The loan amount plus interest and fees

The original loan amount

The minimum amount you can finance

The amount of money needed

The standard formula for calculating interest is:

I = PRT (Interest = Principle x Rate x Time)

I = P/ RT

P = IRT

Dependent upon a your personal credit

An example of a lender would be:

A bank

A credit union

A financing company

A private person

Interest rates can be

Fixed

Variable

Dependent upon loan amount

Influenced by APR and other factors

Annual interest rates are figured by

The month

The week

Daily

The year

Simple Interest is

Paid only on the principle

Paid on the principle and the interest

Includes APR, the principle & quarterly fees

Not a legitimate form of interest

In the formula I = PRT, R stands for

The time is takes to repay the loan

The interest

The amount borrowed

The percent used to calculate the interest, or the rate

Compound interest is

Money paid only on the principle

Money paid on the principle and includes the interest that has already been paid on the principle

Has been compounded at regular intervals such as monthly, quarterly, or daily.

It can be complicated and vary by the terms of the loan

Programs or apps for your phone such as loan calculators can help consumers calculate interest and be an educated, informed consumer

True

False

Personal Finance Lesson 7: Understanding Interest

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