Lesson plan · Credit & Debt · Lesson 5
Types of Loans
Installment vs. revolving: auto, student, personal, and home loans.
- 45 minutes
- Grades 9–12
- Beginner
- Activity: pairs
Objectives
Students will be able to:
- Distinguish installment from revolving credit, and secured from unsecured loans
- Explain how a loan's term changes its monthly payment and total interest
- Compare loans by APR and total cost instead of monthly payment
Materials
- Slide deck and a projector
- Worksheet (one per student)
- Loan Calculator (projected, or on student devices)
- Exit ticket slips (bottom of the worksheet)
Standards
- National Standards for Personal Financial Education (2021)
- Managing Credit
- Texas TEKS §113.76 Personal Financial Literacy and Economics
- (7) The student understands the costs and benefits of borrowing.
Topic-level alignment by FLC. How we map standards
Key vocabulary
- Principal and term
- The principal is the amount you borrow. The term is how long you have to repay it — for example, 60 months.
- Secured vs. unsecured
- A secured loan is backed by something the lender can take if you stop paying — like repossessing a car. An unsecured loan isn't, so it usually costs more.
Background reading
The official sources this lesson is based on.
- Auto loans (opens in a new tab) · consumerfinance.gov
- Student loans (opens in a new tab) · consumerfinance.gov
- Mortgages (opens in a new tab) · consumerfinance.gov
- Federal Student Loans (opens in a new tab) · studentaid.gov
45-minute agenda
0–5 min
Warm-up
Post: “Would you rather pay $300 a month for six years or $450 a month for four years for the same car? What else would you want to know?”
Teacher note: $300 × 72 = $21,600 vs. $450 × 48 = $21,600 — the same here, but usually the longer loan costs more in total. Ask about the APR.
5–12 min
Direct instruction
Present the lesson slides. Make sure students leave with these points:
- Installment loans: fixed amount, fixed payments, set end date.
- Secured loans have collateral that can be taken if you don't pay.
- Longer term = smaller payment, more total interest.
- Shop by APR and total cost, not monthly payment.
- Co-signers are fully on the hook.
Use the “See it” slide (A $20,000 car loan at 7% APR: total interest by term) to make the idea visual.
12–17 min
Worked example
Walk through “"What monthly payment works for you?"” on the slides. Pause before the result and ask students to predict it.
17–22 min
Live demo
Project loan calculator from the slides or the Loan Calculator. Change one input at a time and have students call out what they think will happen.
22–32 min
Pick the Loan
Format: pairs · 10 minutes
- Scenario: a $20,000 car loan at 7% APR.
- Using the loan calculator, pairs record the monthly payment and total interest for 3-, 4-, 5-, and 6-year terms.
- Pairs choose a term for a buyer with a tight budget and one for a buyer with extra room, and justify each.
What to look for: 3 years: $617.54/month, $2,232 interest; 4 years: $478.92/month, $2,988 interest; 5 years: $396.02/month, $3,761 interest; 6 years: $340.98/month, $4,551 interest. Longer terms lower the payment but raise the total cost.
32–37 min
Check for understanding
Use the question slides — or run them as a Four Corners game. Questions:
- Which costs more in total interest?
- If you co-sign a friend's loan, you only have to pay if the lender can't find your friend.
- What kind of loan is this?
37–42 min
Discussion
- Why might someone choose a longer loan even though it costs more?
- Would you co-sign for a close friend? What would you want to know first?
42–45 min
Exit ticket
Prompt: Why should you shop for a loan by APR and total cost instead of monthly payment?
Differentiation
Common misconception
“A lower monthly payment means a cheaper loan.” Stretching the term often makes the loan more expensive overall.
Support
Provide a partially completed table with the 3-year row filled in.
Extension
Research what a co-signer is responsible for and write a short note to a friend who's been asked to co-sign.
Homework or make-up work
Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/credit-and-debt/loans. No account needed; progress saves on their device.