Borrowing & Debt
What borrowing and credit mean; repayment obligations; how interest and fees may add costs; affordable borrowing and debt risks
What a learner can do afterwards
- Explain borrowing, interest and fees; find interest from a repayment total or a stated one-year simple-interest rate
- Distinguish borrowing for an affordable need from borrowing without the means or a plan to repay
- Describe how missed repayments can add debt or affect credit records and property used to back a loan
1 · Read
A loan is money you borrow and promise to repay. Some savings accounts pay interest; some loans charge interest for borrowing. Other loans charge no interest but may still charge fees. Fees are separate charges, so check both. When a loan has positive interest, repaying it costs more than the amount borrowed. Add the borrowed amount, interest and fees to find the total due. If the total includes only the loan amount and interest, subtract the borrowed amount to find the interest.
Borrowing can help with a needed home when the repayments fit the family's budget. It is risky to borrow for something unaffordable without a repayment plan. Buying a want is not automatically risky, and a home loan is not automatically safe. Compare costs and decide whether you can repay. Compare each payment with the money available after other planned costs. If the payment is larger, it does not fit that budget.
In this loan, $100 is borrowed. There are no fees, and $15 interest makes the total $115.
Suppose a loan adds interest each month. If its borrower pays nothing, the debt grows. More borrowing adds debt too. Missed payments can harm credit records, which show borrowing and repayment history. If a car backs a loan, missed payments may let the lender take it.
A percent means out of 100. Divide the rate by 100, then multiply by the unchanged loan amount for one year of simple interest. For example, 5% of $200 is $200 times 0.05, or $10. A credit card uses borrowed money for purchases. Some cards charge interest on unpaid purchases. Others offer interest-free periods, but purchases must still be repaid. Check the interest, fees and payment rules.
Borrowing creates a repayment promise. Interest and fees can add costs. Check the terms, the total cost and whether repayments fit your budget.
The repayment-planning reading and four extra questions were written for this dataset. Other readings are adapted from the supplied Khan Academy financial-literacy records on APR, bankruptcy and types of credit. The percentage-interest question is adapted from Carl Yao's Portland Community College OpenProblemLibrary problem.
2 · Watch
Take it off screen
Where it sits
Where this leads
Jobs that lean on this skill. Follow one to see everything it is built on.
13 questions wait behind this lesson, each with its answer explained. Every answer feeds the sky: stars light as they are learned, and dim when it is time to come back.