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DWU #4

DWU #4. Why is it important to understand the loan process? How might consumers get taken advantage of? What are some key concepts that an individual might familiarize themselves with before getting a loan?.

aidan-cochran
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DWU #4

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  1. DWU #4 • Why is it important to understand the loan process? How might consumers get taken advantage of? What are some key concepts that an individual might familiarize themselves with before getting a loan?

  2. Objective : To gain an understanding of how interest rates are calculated. -What happens if you don’t pay down the principle as soon as possible? -Importance of credit scores -The banks incentive to loan

  3. Interest Rate Formula • a= p(1+rt) • a=The total amount you will pay throughout the duration of the loan • p=principle (the amount borrowed) • r=interest rate • t=time in years • Practice Problem: • 36,000 dollar loan at 10% interest rate through a five year period? (Calculate and share answer with your neighbor!) • answer : 54,000

  4. -How do you calculate your monthly payments? (divide by the number of months of your loan)5 years =60 months answer : 900 dollars per month -How much are you spending on interest over the five year period? answer: (54000 – 36000) = 18,000 dollars

  5. MasterCard Credit Card • Why does your credit score determine how much interest you pay on your loan? • answer: Remember your credit score follows you everywhere. It tells the bank how much of a risk you are. The better the credit score the better the interest rate! • What is the minimum payment option on credit card? • answer: Remember, the bank wants to keep your balance high so they can charge you more interest. If you only pay the minimum payment you will not pay down the balance fast enough and the bank will make a lot of money through interest charges.

  6. Car Loan • Notice the difference in monthly payment between your five year vs. the ten year loan. Why might people select the ten year loan vs. the five year loan? • answer: smaller monthly payment • How much more will you be spending if you select the 10 year loan vs. the five year loan? • answer: 5,850 dollars • Why do car dealerships offer no money down with 0% financing with 1000 dollars cash back? Is it really 0% financing? • answer: To get you to the dealership. This is a customer incentive to buy from them. It is usually 0% financing for the first 6 months…never for the entire loan!

  7. Business Loan Why are interest rates so important when taking out a loan? answer: The lower the interest rate the less you pay the bank on borrowed money. How does a person acquire a good credit score? answer: Getting bills in your name. Paying those bills off on time and in full every month. Do not be delinquent on payments of bills or credit cards.

  8. With time remaining??? • Take your credit cards out! TICKET OUT THE DOOR TODAY!!!!!! Answer the questions and turn in on the way out! • How much do you owe on your credit card? • How much will your payments have to be in order to pay it off in 1 year? • How much will your payments have to be in order to pay it off in 3 years? • How much more total will you be spending if you wait and pay it off in 3 years vs. 1 year? • What is the most important thing you learned today?

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