Chapter 9 Flashcards
principal
A loan’s principal is the amount borrowed, or the unpaid portion of the amount borrowed, on which the borrower pays interest.
rate
The rate is the percentage of interest you will pay on a loan.
time
Time is the period during which the borrower will repay a loan; it is expressed as a fraction of a year.
the formula for simple interest is:
Interest (I) = Principal (P) × Rate (R) × Time (T)
I = P × R ×
there are two ways to calculate APR what are they?
APR formula
APR tables
note : The APR tables are more precise; the formula only approximates the APR.
down payment
An installment contract requires a down payment, which is part of the purchase price paid in cash up front.
adjusted balance method
Adjusted balance method
The finance charge is applied only to the amount owed after the bill is paid each month.
previous balance method
Previous balance method
The finance charge is imposed on the entire amount owed from the previous month.
average balance method
Average daily balance method
The balance is calculated each day of the billing cycle, and payments made reduce the finance charge.
prime rate
The prime rate is the interest rate that banks offer to their best business customers, such as large corporations.
fixed rate loan
Fixed-rate loans are loans for which the interest rate does not change over the life of the loan.
variable rate loan
With variable-rate loans, the interest rate goes up and down with inflation and other economic conditions.
simple interest
Simple interest is interest computed only on the amount borrowed (or saved), without compounding.
The simple interest method of calculating interest assumes one payment at the end of the loan period.
comparison shopping
Comparison shopping involves checking several places to be sure you are getting the best price for equal quality.
impulse buying
Impulse buying occurs when you buy something without thinking about it and making a conscious decision.
