Interest - Financial Literacy

Match the following

• Money paid upfront, rest is usually borrowed

• Principal

• Amount borrowed

• Term for the cost of borrowing money

• Interest

• Term for borrowed

• Financed

• APR

• Annual Percentage Rate - amount of interest charged

• Down Payment

TRUE OR FALSE:

Interest rate remain constant and never change.

• TRUE

• FALSE

Answer explanation

Correct - Interest rates depend on a variety of variables. Rates may even change over a period of time unless they are fixed rates.

TRUE OR FALSE:

If you took out a loan for $1000 at 10% APR and paid more than $100 per month in payments, the principle would decrease and the amount of interest would decrease as well.

• TRUE

• FALSE

Answer explanation

Correct, by paying more, you put more money towards to principle and decrease the amount you still owe.

If you took out a loan for $1000 at 10% APR and paid more than $100 per month in payments, the principle would decrease and the amount of interest would decrease as well. The term for the decrease in principle is called

• accruing

• amoritazation

• interest rate

• default

When borrowing money, you want the ______ interest rate possible.

• lowest

• highest

Answer explanation

Remember, interest is the cost of borrowing money . When you borrow, you want to have the lowest rate possible to lower the total cost of your purchase.

TRUE OR FALSE:

When you deposit money into a bank, you are essentially allowing the bank to use your money to make loans to their bank customers. It is to your benefit to deposit money in high interest accounts.

• TRUE

• FALSE

TRUE OR FALSE:

Interest is always a bad part of financial transactions.

• TRUE

• FALSE

Answer explanation

Remember, interest works in your benefit when you invest!

True or False: Making a higher monthly payment on a loan, decreases the total amount paid over time.

• True

• False

• Makes no difference