*doughuk | 3 borrowing

borrowing money activities

When working out how much a loan will cost you, you should look for the APR of the loan, if you want to get the best deal!

Basically, the lower the APR, the better the deal is for you. The APR (or Annual Percentage Rate) is the amount of money that the banks will charge you for borrowing the money from them. The higher the APR, the more money you are paying your bank for borrowing.

The APR takes into account the interest and charges that you pay plus when and how often they are paid. It is always calculated in the same way so you can compare one APR directly with another and judge for yourself whether one form of borrowing is more expensive than another.

Take a look at the details for the ABC Bank, and the XYZ bank given below

ABC Bank Ltd
Loans....10% APR
Credit Cards....15% APR
Mortgages....5.1% APR%

XYZ Bank Ltd
Loans....7% APR
Credit Cards....20% APR
Mortgages....5.5% APR

question	answer
Who offers a credit card for the cheapest rates?		ABC Bank
Your friend needs a loan for £500.00. Which bank would give your friend the cheapest deal?		XYZ Bank
Of the two, whose mortgage offers the ‘most competitive’ rates?		ABC Bank

borrowing money

You may need a calculator to answer the following question

Suppose you need to borrow £100.00 one month. It may be to pay a bill, to buy Christmas presents, or to buy food. If you borrow the money from a bank or building society use the following chart to work out how long it will take you to pay it back.

Assume the interest rate is 12% per year (1% per month) and that you repay £10.00 exactly each month.

(Amount owed – amount repaid) + interest for the month

month	amount owed		amount repaid		interest for the month
1	£		£		£
2	£		£		£
3	£		£		£	0.82
4	£	73.73	£	10.00	£	0.73
5	£	63.46	£	10.00	£	0.64
6	£	54.10	£	10.00	£	0.54
7	£	44.64	£	10.00	£	0.45
8	£	35.09	£	10.00	£	0.35
9	£	25.44	£	10.00	£	0.25
10	£	15.69	£	10.00	£	0.16
11	£	5.85	£	5.85	£	0.00

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