Good Learning Co.
SavannahYear 8
← Citizenship
CitizenshipBorrowing, insurance and risk30 min★★★ difficulty

Credit, APR and the real cost of borrowing

Borrowing is not automatically bad. A mortgage buys a home decades earlier than saving would. What makes borrowing dangerous is not knowing the price of it, and the price has a name: APR.

Lesson overview

What you'll learn in this lesson

Understand credit, debt, insurance and the risks attached to different financial products

Key learning points

  • • The main ways to borrow
  • • APR makes deals comparable
  • • A worked comparison
  • • Credit scores and being turned down

This lesson at a glance

  • 30 minutes
  • 19 parts to scroll through
  • 4 quick checks
  • Marked quiz at the end
  • Gentle pace: short sittings with pauses

Words to know

creditinsuranceattachedfinancialproducts

Scroll down — the lesson carries on below

Part 1 of 19 · Discover5%
1

Watch & discover

Part 1 of 19

Watch first

Credit, APR and the real cost of borrowing

An English teaching video on this topic from Money Mechanics. Watch it, then scroll down for the lesson.

In a nutshell

Understand credit, debt, insurance and the risks attached to different financial products

2

What you already know

Part 2 of 19

Before we start

What you already know

You can work out percentages of amounts and you understand a monthly budget.

Recap: Building a personal budget
3

Key words

Part 3 of 19

Key words

Words you'll need today

Credit
Borrowed money you must repay, usually with interest.
Interest rate
The percentage charged for borrowing over a period.
APR
Annual Percentage Rate: the yearly cost of credit including fees, for comparing deals.
Overdraft
An arrangement letting an account go below zero, usually at a high rate.
Secured loan
A loan tied to an asset, such as a mortgage on a house, which can be repossessed.
Credit score
A lender's assessment of how reliably you repay.
4

Learning cycle

Part 4 of 19

Learning cycle 1 of 2

Forms of credit

A short piece of teaching, then a check to make sure it has landed.

5

Explore the idea

Part 5 of 19

Learn

The main ways to borrow

A credit card lets you spend up to a limit and repay monthly; clear the balance in full and you usually pay no interest, but pay only the minimum and the debt lingers for years. A personal loan gives a fixed sum repaid in fixed instalments at a fixed rate. An overdraft covers short gaps at a high rate. Hire purchase and 'buy now, pay later' spread the cost of a specific item. A mortgage is a long secured loan against property, which is why the rate is far lower — the lender can repossess.

6

Explore the idea

Part 6 of 19

Learn

APR makes deals comparable

Lenders can hide cost in fees and timing, so the law requires an APR: the total yearly cost including compulsory fees. A 12% APR loan is cheaper than a 39% APR store card, whatever the adverts say about monthly payments. Small monthly payments usually mean a longer term and more total interest. Always compare APR and total amount repayable, not the monthly figure.

7

Quick check

Part 7 of 19

Quick check

APR is useful because it

8

Quick check

Part 8 of 19

Quick check

Which is a secured loan?

9

Reset break

Part 9 of 19

Pause

That's sitting 1 of 2 done

Stretch, get a drink, look out of the window. There is no timer and nothing is counting down — your place is saved, so you can come back in five minutes or tomorrow.

Stop here for now
10

Learning cycle

Part 10 of 19

Learning cycle 2 of 2

Comparing the true cost

A short piece of teaching, then a check to make sure it has landed.

11

Explore the idea

Part 11 of 19

Learn

A worked comparison

Borrow £1,000 over two years at about 12% APR and you repay roughly £1,130 — around £47 a month. Borrow the same £1,000 on a card at 30% APR paying only the minimum and you could repay well over £1,400 while taking years to clear it. Same purchase, hundreds of pounds difference, decided entirely by the rate and the term.

12

Explore the idea

Part 12 of 19

Learn

Credit scores and being turned down

Lenders check your credit file: what you have borrowed, whether you paid on time, and whether accounts went to default. Missed payments stay on the file for years and raise the price of future borrowing, including mortgages. Paying on time, keeping balances well below limits and staying on the electoral register all help. Being refused credit is not always bad news — sometimes the lender has noticed something your budget should have.

13

Quick check

Part 13 of 19

Quick check

Paying only the minimum on a credit card usually means

14

Quick check

Part 14 of 19

Quick check

£1,000 at 12% APR over two years versus 30% APR on a card shows that

15

Common mix-ups

Part 15 of 19

Common mix-ups

Things people often get wrong

  • Judging a deal by the monthly payment. A low payment over a long term often costs far more overall.
  • Thinking 0% 'buy now, pay later' is free. Miss a payment and the charges and credit-file damage are real.
  • Paying a card's minimum and assuming the debt is under control. Minimum payments are designed to last.
  • Believing you have 'a credit score' as one fixed number. Each lender scores you differently from your credit file.
  • Treating an overdraft as spare money rather than expensive short-term borrowing.
16

Challenge round

Part 16 of 19

Game · Sort it

Which of these are true?

Drag each card into the right column. Tap a card first if dragging is fiddly.

True

Not true

17

Challenge round

Part 17 of 19

Game · Fill the gaps

Finish the sentences

Choose the word that belongs in each gap.

A ____ card lets you spend up to a limit and repay monthly; clear the balance in full and you usually pay no interest, but pay only the minimum and the debt lingers for years.

18

Mastery quiz

Part 18 of 19

Marked quiz

End of lesson quiz: Credit, APR and the real cost of borrowing

6 questions, marked with the reasoning shown. No timer.

  1. 1. Clearing a credit card in full each month usually means

  2. 2. Mortgage rates are lower than card rates mainly because

  3. 3. Which most improves how lenders see you?

  4. 4. An overdraft is best used for

  5. 5. A missed payment recorded as a default affects you for

  6. 6. Comparing two loans, you should look at APR and

19

Lesson round-up

Part 19 of 19

Lesson round-up

Ready when you are

Quiz score

Not sat

Games

Not played

Points this lesson

0

Best run

0 in a row

Luna: 0 out of 4 on the practice checks. Only if you feel up to it — one more?

Ask Luna

Do the work

Your written work for this lesson

This is the part you'd do in your book at school. Pick the pieces below, write here or on paper, and photograph anything you draw or work out.

Case study

Should the town centre have a curfew for under-16s?

After a rise in reported vandalism, Harbrook council proposed that under-16s should not be in the town centre after 9 pm without an adult. Police recorded 62 incidents last year, most between 9 pm and midnight. Shopkeepers signed a petition supporting the plan.

A youth council objected. They pointed out that most young people in town at night were going home from sports clubs or work, that the plan punishes a whole group for the acts of a few, and that the library and the bus interchange are in the town centre. They asked instead for a late bus and a youth space.

The council voted to trial the curfew for six months and to publish the crime figures at the end.

Written for Good Learning Co.

Reading questions

  1. Give the strongest point on each side of the argument, using a fact from the case.
  2. Whose rights and whose responsibilities are involved here? Explain both.
  3. Write your own view on the curfew with reasons and one example.

  • Reading and response

    Reading

    Read the case in the lesson again and write what you think should happen, and why it is fair. Use one fact from the case as evidence.

    2 paragraphs (PEE)

  • Extended writing

    Writing

    Write your answer to the lesson's big question in full: the strongest point on each side, then your own view with reasons and an example.

    250–350 words

  • Reading log

    Reading

    Find one news story this week that links to this lesson. Note the headline, where you read it, and how it connects.

    1 story, 4–5 sentences

  • Two sides of the argument

    Writing

    Write the strongest point for, the strongest point against, and then your own view with a reason.

    3 paragraphs

  • Poster or leaflet plan

    Diagram

    Plan a leaflet that explains this right or responsibility to someone your age, then photograph it.

    1 planned page

Saved as you type.

Part 1 of 19 · Watch & discover

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