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

Chapter: Household Finance & Major Decisions

What this practice covers

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

8 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.

Problem 5

Both supply $1,000 with no extra fees: A is 12×$90; B is 24×$50. Rates and other schedules are not supplied. Calculate total repayments and charges; explain a limit.
Answer and explanation

A repays $1,080 with an $80 simplified charge; B repays $1,200 with a $200 charge. B’s smaller installment does not make it cheaper overall. Payment timing, affordability, and conditions matter, and these totals alone are not formal APR calculations. The packet supports a defined cost comparison rather than a recommendation for a real borrower.

Multiply installment by count.

Subtract $1,000 principal.

Separate total cost from affordability and formal APR.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 6

Does a credit score establish a person’s moral worth?
Answer and explanation

No. It summarizes selected credit information under a model. It is not a measure of character, complete wealth, or every constraint. Evaluate records and terms without stigmatizing people or requiring private disclosures.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 7

Invented $500 loans with no other charges: A ten payments of $55; B twenty of $30. Calculate totals and charges.
Answer and explanation

A repays $550 with a $50 charge; B $600 with a $100 charge. B has a smaller installment and larger total cost. These totals are not formal APR computations; timing, affordability, and conditions remain relevant.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 8

Under a one-percent monthly growth model without payment, calculate two months on $200.
Answer and explanation

After one month the balance is $202; after two it is $204.02. The second growth applies to $202. The model excludes payments, fees, and contract-specific rules, so it does not describe every actual credit account.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Browse all courses