Nearpod version available
Grade 9-12
,
Lesson
Earning Credit
Objective
Students will be able to:
- Define credit score and interest rate.
- Explain how lenders use credit scores to evaluate risk.
- Explain the kinds of behaviors that affect people’s credit score.
- Explain how credit scores affect interest rates for individual borrowers.
- Compare simple and compound interest.
- Use mathematical strategies to calculate monthly payments, given principal and interest rate.
- Calculate how compound interest affects the total cost of a major purchase.
- Compare the total cost of major purchases for people with low and high credit scores.
Standards
Concepts
Assessment
Go to ReadyAssessments and assign Adopt-A-Highway Quiz to your class(es).
-
- Show the graph on Slide 16. Ask students what happens to the total amount of interest paid when interest is compounded more frequently? [It increases.]
- How will a low credit score impact an individual’s total cost when purchasing a large item, like a car or house? [They will pay a lot more.]
-
- Which of the following best defines “credit”?
- [The opportunity to borrow money or to receive goods or services in return for a promise to pay later.]
- The price paid for using someone else’s money, expressed as a percentage of the amount borrowed.
- Money paid regularly, at a particular rate, for the use of borrowed money.
- A record of past borrowing and repayments.
- Assume you are a lender. Each of the four individuals described below is seeking a car loan. To whom would you offer the lowest interest rate on a loan?
- Lebron, a high school basketball coach and golf pro; he recently borrowed $15,000 to go back to school and $200,000 to buy a new house, and he owes $2500 on his four credit cards.
- Katrina, a real estate agent who recently got a new job after 8 months of unemployment; she has $5,000 in credit card debt and missed two mortgage payments on her home this year.
- [Bonnie, a travel agent with $2500 in credit card debt and a $150,000 mortgage on her house in Hawaii; she made two late credit card payments in the past 15 years.]
- Walt, a recent college graduate who just got his first teaching job; he has never taken a loan or owned a credit card.
- Max borrows $10,000 to buy a new car at a rate of 5% for 72 months (6 years). Interest is compounded monthly. What will be the total cost of the car, including principal and interest, at the end of 72 months?
- $11,000
- $11,322
- [$11,595]
- $13,400
- Which of the following best defines “credit”?
Constructed Response
- Jim takes out a car loan for $23,500. Due to his strong credit score, he is approved for an interest rate of 2.6%.
- What is the principal amount he has borrowed? ($23,500)
- If Jim borrows for five years, how much will he pay in principal and interest by the end of five years? (Use the amortization formula) ($25,086)
- What is Jim’s monthly payment? ($418.10)
- How much did he pay in interest? ($1,586)
- Now assume that Johnny also takes out a car loan for $23,500. Due to his lower credit score, he is approved for an interest rate of 5%. How much will he pay in principal and interest by the end of five years? ($26,608.20)
- What is Johnny’s monthly payment? ($443.47)
- How does a better credit score affect the total cost of a new car? [A better credit score will produce a lower interest rate and will reduce the total cost of the car.]