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)
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.
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. Answers:
- Which costs more in total interest? — B. The 6-year loan, even though each payment is smaller
- If you co-sign a friend's loan, you only have to pay if the lender can't find your friend. — False
- What kind of loan is this? — C. A secured loan
- 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?
Answer: A lower payment can hide a longer term or higher rate, which means paying much more in total.
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.