Name:____________________

Period:_____

Using Credit to Buy

APR, or Annual Percentage Rate is the interest rate you pay in a single year on the money you
borrowed. This is the rate of interest you really pay. Always know this rate when you buy
something using credit!!! USE SIMPLE INTEREST WHEN CALCULATING INTEREST
1. Logan buys a new Samsung 40 flat screen TV for $900. He puts 50% down as a down
payment and borrows the rest of the money by using is Best Buy credit card.
a. What is his down payment?

b. What is the amount he borrowed (loan amount)?

c. Your Best Buy Credit Card charges you a finance fee of $2 plus 22% APR. What is the total
he will really pay for the TV, including fees and interest if he pays off the bill in one year?

Sale Price +Fees+ Interest on Loan =

2. Caleb buys a new dishwasher, stove and microwave for $3,000. He pays 10% as a down
payment and borrows the rest of the money by using his Sears credit card.
a. What is his down payment?

b. What is the amount he borrowed (loan amount)?

c. Your Sears Credit Card charges you 19% APR. What is the total he will really pay for
the appliances if he pays it off in one year?

Sale Price +Interest on Loan =

3. Theresa buys a used car from Gurnee Ford for $12,500. The dealer will finance her car at
4.9% for 5 years if she puts $2,000 down. What is the true cost of buying her car?
a. Sale Price + Interest Paid =

b. What is her monthly payment? Amount Borrowed + Interest Paid

------------------------------------------ =
# of months the loan is for
c. Her car insurance is $92 per month. She spends $85 per month on gas and $20 per
month on maintenance and tolls. What is her total cost of owning her car, per month
(monthly payment + gas+ maintenance?)

4. Joey bought a house for $250,000 and put 20% down. With a 6% APR, he will really pay a total
of $610,000 over the 30 years of his loan. How much is his monthly payment?
a. $_____________________ per month
b. Joeys property insurance (which the mortgage company requires) is $75 a month.
His property taxes are $458 per month. What is his total cost for his mortgage, taxes,
and insurance?

c. Your debt to income ratio, DTI, (monthly debt divided by monthly income) should be
no more than 28% for your home loan. Otherwise you may struggle to get a loan or
pay your bills. If Joey makes $7,500 per month, what is his DTI if taxes and
insurance are included?

5. Michelles Fitness Store is selling a really cool treadmill advertised as only $32 per month with
their payment plan. You read the fine print and see that the $32 per month is for 72 months.
a. What is the true cost of buying the treadmill?

b. How much would she have saved if you did not buy the treadmill on credit and
instead outright for $1,000 without a payment plan?

6. REACTION: What can you do lower the real or total cost of buying something on credit?