INTEREST

What does that mean?

What What interestinterest would anyone would anyone

have in lending have in lending you money?you money?

What interest would a bank

have in loaning money to people?

Business is business…they want your

Who else, besides a bank, charges you interest if you need to borrow money?

Ever hear of these guys?No credit check? Bad credit OK?

How about these guys?

Buying a car??? You’re paying interest unless you pay cash!

Credit card, anyone?

Why do cashiers Why do cashiers always ask you if you always ask you if you

would like to save would like to save 10% on your 10% on your

purchase by opening purchase by opening a charge account?a charge account?

How about the no payment, no interest for one year, two

years, or until the year 2012?

Why would they do that?

How could they possibly make money that way?

What will you really pay?

• You are going to buy a coat for $500. • The interest rate is 20% annually. • You receive a 10% discount for opening

the credit account.• You pay $20.00 per month.• How many years will it take you to pay

it off?• How much will you pay for the $500.

coat?

What you pay…Year 1

• Coat price - $500.00

• Less 10% - 50.00

• Balance - 450.00

• 20% Int. - 90.00 (year 1)

• Balance - 540.00

• Less 20/m - 240.00

• Balance - 300.00

What you pay…Year 2

• Balance - $300.00

• 20% Int. - 60.00

• Balance - 360.00

• Less 20/m - 240.00

• Balance - 120.00

What you pay…Year 3

• Balance - $120.00

• 20% Int. - 24.00

• Balance - 144.00

• You’ll pay it off!

What did you pay?

• Year 1 interest - $90.00• Year 2 interest - $60.00• Year 3 interest - $24.00

• TOTAL INTEREST - $174.00• PRICE OF COAT - $450.00

• TOTAL PAID - $624.00