1. Managing your Personal Finances Mr. Eleuteri C114 Blocks 1 and 2 The Costs of Credit 1

2. DO NOW: You are thinking about buying a tv for $1,000 on credit at 24%… How long will it take to pay it off with a monthly payment of $200? What will be the total cost? How long will it take to pay it off with a monthly payment of $50? What will be the total cost? 2

3. Unit Standards (Goals): G.2 Students will be able to calculate the true cost of credit. 3

4. What does it really cost… Scenario 1 You use your “Great Buy” credit card to purchase a 60” TV on sale for $1000. You want to pay it off as fast as possible but realize you can only afford to send them $200 per month. 4

5. What does it really cost… Scenario 1 Questions : How much interest will you pay each month? How long will it take you to pay it off? How much total interest will you be paying? What is the total cost of the tv (with sales tax and interest)? 5

6. What does it really cost… First off, when you get to the register the total bill is $1,070.00. Sales tax in New Jersey is 7%. ($1,000 x.07=$1,070) You send Great Buy the $200 and they calculate interest and your new balance this way… 6

7. What does it really cost… edmunds.com Welcome, Guest Sign In Facebook Sign in Account Mobile Help Inside LineMobileHelpInside Line Great Buy $1,070.00 - $200.00 ------------ $870.00 $870.00 x.24 / 12 = 17.40 monthly interest Balance Interest Rate/month New Balance = $870.00 + $17.40 = 887.40 Do this for each month until the bill is paid off. 7

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9. So…. How much interest will you pay each month? How long will it take you to pay it off? How much total interest will you be paying? What is the total cost of the tv (with sales tax and interest)? 9

10. What does it really cost… Uh oh Despite your best intentions you find you can only afford to pay $50 per month. How long will it take you to pay it off? How much interest will you pay each month? In total? 10

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12. So….with only paying the minimum balance….. How much interest will you pay each month? How long will it take you to pay it off? How much total interest will you be paying? What is the total cost of the tv (with sales tax and interest)? 12

13. What will be my monthly payment? To calculate the monthly payment on an auto loan use this loan payment formula: c = Monthly Payment r = Monthly Interest Rate (in Decimal Form) = (Yearly Interest Rate/100) / 12 P = Principal Amount on the Loan N = Total # of Months for the loan ( Years on the loan x 12) 13

14. For example… Assume Interest rate of 8% So r = (8/100)/12 = 0.006666667 or.007 Loan Amount of $25,000 Loan Term of 4 years (48 months) 14

15. To calculate monthly cost… 15 Steps: 1.Calculate rate: ( 8/100)/12 =.007 2.Calculate numerator:.007*25000=175 3. Calculate denominator: 1-(1+.007) -48 =.285 4. Solve problem

16. Too much per month…might need to increase length of loan 16 Assume Interest rate of 8% So r = (8/100)/12 = 0.006666667 or.007 Loan Amount of $25,000 Loan Term of 6 years (72 months)

17. To calculate monthly cost… 17 Steps: 1.Rate stays the same: (8/100)/12 =.007 2.Numerator stays the same:.007*25000=175 3. Re-Calculate denominator: 1 – (1+.007) -72 = =.395 4. Solve problem

18. Exit Ticket: 18 Based on the previous loan problem, create a statement that summarizes the relationship in the amount of the monthly payment for a loan and the term of the loan.