APR and Interest — slides
Financial Literacy Club
Credit & Debt · Lesson 4
APR and Interest
How interest is charged — and why minimum payments are so expensive.
14-minute lesson · learnwithflc.org
APR and Interest · 1 / 22
Financial Literacy Club
Credit & Debt · Lesson 4
APR and Interest
How interest is charged — and why minimum payments are so expensive.
14-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Convert an APR into monthly and daily rates
- Explain why minimum payments are mostly interest
- Compare payoff time and total interest for different monthly payments
Warm-up
A card charges 24% APR. Is that 24% a month? What would the monthly rate be?
Think, then write your answer.
The big idea
APR and Interest
How interest is charged — and why minimum payments are so expensive.
Vocabulary
APR (Annual Percentage Rate)
The yearly cost of borrowing, as a percentage. For credit cards, the APR is the interest rate on balances you carry.
Credit & Debt · Lesson 4
Cards usually charge interest daily. The daily rate is the APR ÷ 365. On a 22% APR, that's about 0.06% a day — small each day, but it adds up, and it compounds.
Credit & Debt · Lesson 4
The minimum payment is designed to be small. On many cards, it's about 1% of your balance plus that month's interest. That means most of your payment goes to interest, and the balance barely moves.
Credit & Debt · Lesson 4
Your statement is required to show how long it would take to pay off your balance by making only minimum payments — and how much you'd pay in total. Read that box.
Credit & Debt · Lesson 4
- Pay in full whenever you can.
- Pay more than the minimum — even a little more helps a lot.
- Stop adding new purchases to a card that has a balance.
- Ask your card issuer for a lower APR if you've paid on time.
Credit & Debt · Lesson 4
"No interest if paid in full"
Some store cards offer deferred interest. If you don't pay the whole purchase off by the deadline, interest can be charged all the way back to the purchase date. That's different from a true 0% APR offer.
See it
Paying a $2,000 balance at 22% APR: paying only the minimum takes about 139 months and costs about $2,600 in interest. Paying $100 a month takes 26 months and about $514 in interest. Paying $200 a month takes 12 months and about $230.
Minimum only (139 months)
$100 a month (26 months)
$200 a month (12 months)
Real example
Chris and the $2,000 balance
Chris owes $2,000 on a card with a 22% APR and stops using the card. Three ways to pay it off:
- Minimum only: about 11.6 years, $2,600 in interest — more than the original balance.
- $100 a month: 26 months, about $514 in interest.
- $200 a month: 12 months, about $230 in interest.
The debt is the same. The payment decides whether it costs a couple hundred dollars or a couple thousand.
Try it together
Try it: credit card payoff calculator
Change the payment and compare it with paying only the minimum.
Your numbers
Assumes no new purchases on the card.
Results
Paying $100 a month
2 years, 2 months
$514 in interest
Paying only the minimum
11 years, 7 months
$2,600 in interest
- Balance $2,000
- Interest $514
“Minimum” here means 1% of the balance plus that month's interest, or $25, whichever is more — a common formula. Card issuers vary; your statement shows yours.
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Activity · pairs · 10 min
Minimum vs. More
- Scenario: a $2,000 balance at 22% APR, with no new purchases.
- Pairs predict how long payoff takes paying only the minimum, $100 a month, and $200 a month.
- Project the credit card payoff calculator and fill in a table: months to pay off and total interest for each plan.
- Pairs write one sentence of advice to someone who only pays the minimum.
Check for understanding · 1 of 4
You carry a $1,000 balance on a card with a 24% APR.
About how much interest is added in one month?
- AAbout $2
- BAbout $24
- CAbout $20
- DAbout $240
C. About $20
24% a year ÷ 12 months ≈ 2% a month. 2% of $1,000 ≈ $20.
Check for understanding · 2 of 4
Why does paying only the minimum take so long?
- AMost of each minimum payment goes to interest, so the balance shrinks slowly.
- BCard companies ignore minimum payments.
- CMinimum payments are only applied to fees.
- DThe APR goes up every month.
A. Most of each minimum payment goes to interest, so the balance shrinks slowly.
Minimums are built to be small. When much of the payment covers interest, very little goes toward the actual balance.
Check for understanding · 3 of 4
A store card offers "no interest if paid in full in 12 months" on a $600 TV. By month 12, you've paid $500.
What most likely happens?
- AYou owe $100 with no interest.
- BInterest is charged only on the last $100.
- CThe store forgives the rest.
- DInterest may be charged on the full $600, back to the purchase date.
D. Interest may be charged on the full $600, back to the purchase date.
That's how deferred interest works: miss the payoff deadline, and interest can be charged on the whole purchase from day one.
Check for understanding · 4 of 4
If you pay your full statement balance every month, you typically pay no interest on purchases.
- True
- False
True
That's the grace period at work. Interest only kicks in on balances you carry past the due date.
Remember
Key takeaways
- APR ÷ 12 ≈ monthly interest rate. APR ÷ 365 = daily rate.
- Minimum payments are mostly interest. Pay more whenever you can.
- Your statement shows the true cost of paying only the minimum.
- Deferred interest isn't the same as 0% APR.
Discuss
Talk it over
- Why do you think minimum payments are set so low?
- If a friend had a $2,000 card balance, what plan would you suggest?
Exit ticket
How is “deferred interest” different from a 0% APR offer?
Answer on your exit ticket before you leave.
Nice work today.
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