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Understand Interest Rates and Loans: Key Details for Borrowing Money

Learn the fundamentals of interest rates and loans, key terms to consider when borrowing money, and how to pay off a loan effectively. Understand the risks involved and make informed financial decisions.

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Understand Interest Rates and Loans: Key Details for Borrowing Money

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  1. Interest Rates The risk in borrowing money….. Home loans Car loans Student loans

  2. #1 Rule of Money Lesson:Financial offers are complex/risky => if an offer sounds “too good to be true” => Look for what YOU are missing!

  3. Interest Rates & Loans • Interest Rates are the “price of money” • Cost of borrowing(buying) money • Benefit of saving money • Some loans have fixed interest rates • Monthly payment the exact same for life of loan (i.e. $500 per month) • Some loans have adjustable interest rates • Monthly payment changes—could ↑ or ↓

  4. Terms (details) of Loans

  5. Key Details of Loan • Key Terms of a Loan: • Interest Rate => Fixed or Adjustable interest rates (lifetime cap?) • Repayment period => Typically 1-30 years • Accrued Interest period => when the loan start charging interest • Penalties => late fees, prepayment penalties, etc… $5,500 Principle Payments = $5,000 Youborrow $5,000 @ 10.0% for 1 yr Bank + All Interest Payments = $500 $5,000 Total Loan Payment = Principal Payment + InterestPayments

  6. Paying off a loan You borrow $5,000 at 10% interest for 1-year Total Loan Payment = Principal Payment + InterestPayment $5,500 Principle Payments = $5,000 Youborrow $5,000 @ 10.0% for 1 yr Bank $5,000 + All Interest Payments = $500

  7. Amortization Schedule: • how the principle of a loan is “paid down” over time Monthly payment = principal payment +interest payment $506.69 monthly payment

  8. Interest Rate Worksheet

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