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
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