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Credit - Head Matters

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1. Benefits and Costs

 b. Explain the Difference in Cost between Cash and Credit Purchases (continued)



José is buying many things on credit—his education, clothes, a car, a house, he knows what the basic price is for each purchase. But, he wonders what these purchases are really costing him over the period of each loan. So he created this table:

Items Cash Price Monthly Principal and Interest Calculation Total Cost
Graduate student Loan $23,000, 8.25% APR, 10 years $23,000 $282 120 x $282 $33,840
Cothes with department store card, $1,000, 22% APR, 1 year $1,000 $94 12 x $94 $1,128
Car loan, $15,000, 9% APR, 5 years $15,000 $311 60 x $311 $18,660
Home mortgage, $150,000, 8.5% APR,
30 years
$150,000 $1,153 360 x $1,153 $415,080
Home mortgage, $150,000, 7.5% APR,
30 years
$150,000 $1,049 360 x $1,049 $377,640
Home mortgage, $150,000, 7% APR,
15 years
$150,000 $1,348 180 x $1,349 $242,820


Exercise: Jose's Spending Table?

Directions: Answer the following questions about Jose's spending table with the answer(s) that are most correct.

1. How much more does Jose pay for closthes if he pays with a credit card rather than cash?
  • a. $128
  • b. $683
  • c. $94
2. How much more does he pay for a car if he pays with a loan rather than with cash
  • a. $1,153
  • b. $3,660
  • c. $18,683
3. How much more does Jose pay for closthes if he pays with a credit card rather than cash?
  • a. $104
  • b. $0
  • c. $153
4. Comparing the 7.5% vs. the 8.5% loan over 30 years, how much would he save over the entire period of the loan?
  • a. $38,160
  • b. $37,637
5. If he stretches his finances and takes a 15-year loan at 7% rather than a 7.5% loan for 30 years, which is true?
  • a. He saves $299 per month in payments
  • b. He saves $134,820 over the course of the loan
6. If he needs to keep his monthly mortgage payments as low as possible, which loan should he choose?
  • a. The 8.5% APR over 30 years
  • b. The 7.5% APR over 30 years
  • c. The 7.0% APR over 15 years
7. If he wishes to keep the total cost of his house at the lowest level, which loan should he choose
  • a. The 8.5% APR over 30 years
  • b. The 7.5% APR over 30 years
  • c. The 7.0% APR over 15 years

Current Course:
Credit

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