Credit, Interest, Loan Terms & Borrowing Costs — Drills · Grade 12 Social Studies

Chapter: Household Finance & Major Decisions

What these drills covers

By the end of Credit, Interest, Loan Terms & Borrowing Costs you should be able to:

4 questions, written answer, each with a worked explanation.

Vocabulary used: principal, interest, APR, compounding, credit report.

Problem 1

Why is a quoted interest rate insufficient for comparing all borrowing costs?
Answer and explanation

Fees, timing, term, principal changes, compounding, and other conditions can differ. Compare the complete schedule and amount received, using the applicable disclosure definitions. A single rate does not establish the entire cost or feasibility.

Problem 2

Why is the lower monthly payment not proof of the lower total cost?
Answer and explanation

Payments can continue longer or include other obligations. In the supplied offers, 24×$50 exceeds 12×$90. Compare total repayment, timing, and conditions alongside the ability to meet each installment.

Problem 3

Why does compounding differ from adding the same interest amount each period?
Answer and explanation

The rate applies to a changing balance including prior accumulated interest under the model. The second month adds $1.01, not $1, to the supplied $101 balance. Payments and contract rules can change the actual process.

Problem 4

Why is a favorable credit score not a guarantee of affordable repayment?
Answer and explanation

A score reflects selected information through a model, not every current budget, obligation, income change, or shock. Affordability needs a dated cash-flow and terms comparison. Future outcomes remain uncertain.

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