Lesson 6 Introduction to Credit

9-Week Course

5.1 Intro to Credit

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Approximate Time: 45 minutes

5.1 Intro to Credit

LEARNING OBJECTIVES

Students will be able to:
● Explain why a person may need or want credit
● Identify the major types of credit and their

characteristics

● Understand the three basic components of lines of

credit: principal, interest rate, and term

Open Ended

Have you ever borrowed from or lent money to someone? 1. Did it work out the way you anticipated? 2. Were both people happy at the end?

RESOURCE 2: LOAN BASICS

Perhaps you’ve casually lent or borrowed money from
a friend before. But more formal loan arrangements
from a financial institution come with far more terms
you must understand in order to get a fair deal.
Watch the short video on loan basics and then answer
the questions.

Match

Match the following

• principal

• interest

• term

the original amount of money in a loan

the additional price paid to borrow money or the cost you are charged for a loan

the agreed upon timeframe for a loan to be paid in full

• the original amount of money in a loan

• the additional price paid to borrow money or the cost you are charged for a loan

• the agreed upon timeframe for a loan to be paid in full

​Installment Loans used to finance a specific purchase for a specific amount of time.

Regular payments are made to pay the interest and the principal.

​Revolving Credit an open line of credit that can be used for any purchases as long as you’re under the credit limit.

Payment amounts vary each pay period based on the size of the debt.

​Secured Debt debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn’t make payments

​Unsecured Debt debt is not tied to a specific asset; there is no collateral that can be repossessed if borrower defaults

​Variable-Rate interest rate can change during the duration of the loan based on the prime rate or an index rate

​Fixed-Rate interest rate remains constant during the duration of the loan

Multiple Select

Installment Loans

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​

• Auto loan

• Mortgage

• Payday Loan

• Credit Card

• Student Loan (federal)

Multiple Choice

Revolving Loans

​

​ ​

• Credit Card

• Auto loan

• Mortgage

• Payday Loan

• Personal Loan (from a bank)

Multiple Select

Secured Debt

​ ​

• Auto loan

• Mortgage

• Credit Card

• Payday Loan

• Personal Loan (from a bank)

Multiple Select

Unsecured Debt​

​

• Credit Card

• Payday Loan

• Personal Loan (from a bank)

• Student Loan (federal)

• Auto loan

Multiple Select

Variable Interest Rate

​ ​

• Credit Card

• Personal Loan

• Auto loan

• Mortgage

• Payday Loan

Multiple Select

Fixed Interest Rate

​ ​ Student Loan (federal)

• Auto Loan

• Mortgage

• Credit Card

• Payday Loan

Open Ended

Why do people sometimes use credit to pay for items instead of just using cash?

Poll

When applying for credit, is it preferable to receive a low interest rate or a high interest rate?

• Low interest rate is preferred

• High interest rate is preferred

RESOURCE 4: SHADY SAM

In this short game, you get to play the role of
loan shark, trying to make the most profit off of
borrowers’ interest payments. Play the game
Shady Sam and then answer the questions.

Open Ended

As the game says, most borrowers only pay attention to the monthly payment when taking out a loan. Why do you think this is? 

Home

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Dropdown

You probably noticed a pattern that allowed you to maximize profits. Complete this sentence by circling or highlighting one term: 

The loans that were most profitable tended to have the ​ ​

Select answer

terms and the ​

Select answer

monthly payments.

RESOURCE 5: EXIT TICKET

Take the three question Exit Ticket to
assess what you have learned about
intro to credit!

Multiple Choice

Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?

• Principal

• Term

• Interest Rate

• APR

Multiple Choice

Each of the following represents an installment loan EXCEPT…

• Mortgage

• Auto Loan

• Student Loan

• Credit Card

Multiple Choice

Why might someone consider choosing a loan with the lowest monthly payment?

• Low payments fit better in their monthly budget

• Low payments indicate a low interest rate

• Low payments eventually lead to lower total interest paid

• Low payments help you pay off your loan more quickly