Cost of Borrowing Money Outcome C2: Explore the effects of parameter changes on the cost of borrowing money.

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Presentation transcript:

Cost of Borrowing Money Outcome C2: Explore the effects of parameter changes on the cost of borrowing money

Mental Math Mentally Calculate the number of payments a) Monthly for 5 years b) Semi-annually for 7 years c) Quarterly for 12 years d) Semi-monthly for 3 years e) Weekly for 4 years f) Biweekly for 6 years

Cost of Borrowing Money Mostly dealing with short term borrowing. There are many forms: Overdraft Protection Credit Cards Payday Loans Lines of Credit/Loans

Overdraft Protection Withdraw more from the bank than in your account. Bank will cover a portion up to agreeable amount. Some banks have interest rates of over 21% per year. Also have to pay a fee to use it.

PayDay Loans A small amount of money lent at a high interest rate based on the borrower repaying amount on next pay cheque. Cash Money, PayDay Loans, etc. Max. interest rate in NS is 25%

PayDay Loans

Lines of Credit Amount of money given to borrowers with good credit history Takes many forms: credit cards, loans, overdraft, etc. Only pay interest on what you use. Over set amount of time with monthly payments.

Lines of Credit Interest rate is usually less than that of a credit card. Bank will look for security/collateral to cover their losses if you cannot pay. Called defaulting on a loan.