Cost of Credit

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What is the cost of credit?

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The cost of credit refers to the total amount of money that a borrower pays to a lender in exchange for borrowing money, including interest and any additional fees.

Tags

CCSS.5.NBT.A.2

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Define interest rate.

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The interest rate is the percentage of the loan amount that a lender charges a borrower for the use of borrowed money, typically expressed on an annual basis.

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CCSS.7.RP.A.3

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What is a loan term?

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A loan term is the duration over which a borrower agrees to repay a loan, which can range from a few months to several years.

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How do you calculate total repayment on a loan?

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Total repayment is calculated by multiplying the monthly payment amount by the total number of payments made over the loan term.

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CCSS.6.RP.A.3B

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What is the formula to calculate interest paid on a loan?

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Interest paid = Total repayment - Principal amount.

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CCSS.7.RP.A.3

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What is the difference between fixed and variable interest rates?

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A fixed interest rate remains the same throughout the loan term, while a variable interest rate can change based on market conditions.

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How does a lower interest rate affect total repayment?

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A lower interest rate reduces the monthly payment amount and the total repayment amount over the life of the loan.

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CCSS.7.RP.A.3

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What is the principal amount in a loan?

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The principal amount is the original sum of money borrowed, excluding interest and fees.

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What is amortization?

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Amortization is the process of gradually paying off a loan through regular payments that cover both principal and interest.

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How do monthly payments affect the total cost of a loan?

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Higher monthly payments can lead to a lower total cost of the loan, as they reduce the interest accrued over time.

Tags

CCSS.7.RP.A.2C