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Financial Literacy Club

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Credit & Debt · Lesson 4

APR and Interest

Part A. Vocabulary

Define each term in your own words.

APR (Annual Percentage Rate)

Part B. Guided notes

Fill in each blank using the word bank.

Word bank: interest · isn't · payments · statement

  1. APR ÷ 12 ≈ monthly rate. APR ÷ 365 = daily rate.
  2. Minimum are mostly interest. Pay more whenever you can.
  3. Your shows the true cost of paying only the minimum.
  4. Deferred interest the same as 0% APR.

Part C. Check your understanding

Circle the best answer.

  1. You carry a $1,000 balance on a card with a 24% APR.

    1. About how much interest is added in one month?

    • A. About $2
    • B. About $24
    • C. About $20
    • D. About $240

  2. 2. Why does paying only the minimum take so long?

    • A. Most of each minimum payment goes to interest, so the balance shrinks slowly.
    • B. Card companies ignore minimum payments.
    • C. Minimum payments are only applied to fees.
    • D. The APR goes up every month.

  3. A store card offers "no interest if paid in full in 12 months" on a $600 TV. By month 12, you've paid $500.

    3. What most likely happens?

    • A. You owe $100 with no interest.
    • B. Interest is charged only on the last $100.
    • C. The store forgives the rest.
    • D. Interest may be charged on the full $600, back to the purchase date.

  4. 4. If you pay your full statement balance every month, you typically pay no interest on purchases.

    True/False

Part D. Apply it

Show your work.

  1. 1. A card has an 18% APR. What's the approximate monthly rate, and about how much interest is charged in a month on a $1,000 balance?

  2. 2. You owe $1,200 at 24% APR and pay $100 a month. About how many months until it's paid off, and how much interest will you pay?

Part E. Think about it

Answer in complete sentences.

  1. 1. Why do you think minimum payments are set so low?

  2. 2. If a friend had a $2,000 card balance, what plan would you suggest?

Exit ticket

Name

How is “deferred interest” different from a 0% APR offer?