Calculating the Cost of Repaying a Loan

T.i.P.S.

Students should use their knowledge of interest rates to explore different types of loans including credit cards and the cost of repaying these loans over various lengths of time (6 months, 12 months, 24 months, 36, months, 60 months, 66 months, 72 months, etc). Students may use online calculators to calculate the principle or the total cost of purchasing items with loans and credit cards. Students should realize that the principle or amount owed decreases over time.

Example

Sarah is trying to decide if she should take out a Holiday loan for $2,000 with a 5.25% interest rate for one year or a $2,500 loan at 4.75% for 2 years. She decides to use an online calculator to quickly make her decision. Which loan would be the best for Sarah and why? Mr. Gonzales is taking out a loan to buy a house. The price of the house is $245,000. He is wondering what type of loan would be best. His options are a 3.5% fixed loan for 30 years, 4.5% fixed loan for 15 years or a variable rate loan for 10 years. Which loan should Mr. Gonzales choose? Why? 

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Possible Solutions

TEKS

8.12 Personal financial literacy. The student applies mathematical process standards to develop an economic way of thinking and problem solving useful in one's life as a knowledgeable consumer and investor. The student is expected to:

(B) calculate the total cost of repaying a loan, including credit cards and easy access loans, under various rates of interest and over different periods using an online calculator

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