Simple Interest, Loans And Hire Purchase Agreements

Question 1

What is interest?

Answer 1

Interest is money that is paid for the use of money lent or borrowed.

Question 2

What is a loan?

Answer 2

It is when money is borrowed and must be paid back over a period of time.

Question 3

What is VAT?

Answer 3

VAT is value added tax. It is 14% of money paid on all items except essential food items.

Question 4

What is a hire purchase loan?

Answer 4

A hire purchase loan is an agreement between a customer and a salesperson. The customer will buy a product, but they will not pay for it up front. They will pay off the money over a period of time at an agreed interest rate. The person will usually make a deposit on the product before they are allowed to take it.

Question 5

How do we work out how much a hire purchase loan is?

Answer 5

First you need to figure out the deposit, as this is paid up front, not borrowed from the supplier.
Subtract the deposit from the total price to figure out how much money the person actually borrows.
Calculate the amount of money paid over the total period. You work this out using the simple interest formula.
Add the deposit to the previous amount of find out the total cost of the item.

Question 6

What is the simple interest formula?

Answer 6

Accumulated amount=Principle amount(1+interest ratex number of years)
A=P(1+in)

Question 7

You may be asked to work out the amount that is paid every month. How do you do this?

Answer 7

First you need to figure out the deposit, as this is paid up front, not borrowed from the supplier.
Subtract the deposit from the total price to figure out how much money the person actually borrows.
Calculate the amount of money paid over the total period. You work this out using the simple interest formula.
Divide the previous amount by the number of years multiplied by the number of months in a year (12)
The result is how much money the person will have to pay in a month.