Credit Card Lesson for High School Students

Ram is writing an Exam and his pencil broke

Ram borrows a pencil from his friend Neeta

What is the expectation from Neeta?

Neeta will expect that Ram will return the pencil the next day

How many pencil/s will Ram have to return ?

Neeta will expect only one Pencil

And they become good friends

What would have happened if Ram hadn’t returned the pencil?

Neeta would be angry with Ram

Not only that, she will be telling every other friend about Ram

No one will likely to give any thing to Ram

Credit Card works similar

You go to a shop, buy some thing and no money with you

The bank is your friend and gives you money when you are in need

But, Bank does not give it to you, but gives to shop keeper on behalf of you

Whatever you borrow, you will have to return in 30 days (or some time less number of days)

If you don’t return

Banker becomes angry

He not only tell other banks not to give you any more money, but also charges interest

What is the formula for applying interest?

•A = P (1+r)n Banker will charge interest in months and not years

Every month upto 3% interest will be charged if money is not returned

If your borrow Rs 100 on credit Card?

What is the interest for one month if the money is not returned on due date, interest rate charged is 3%?

Rs 3

What is the interest if money is not returned even after 2 months, interest rate charged is 3%?

Rs 3

Or Rs 3.09

What if you don’t return for 1 yearMonth Borrowe

dInterest @ 3% if money not returned by end of month

Total loan

1 Rs 100 Rs 3 Rs 103

2 Rs 3.09 Rs 106.09

3 Rs 3.18 Rs 109.27

4 Rs 3.28 Rs 112.55

5 Rs. 3.38 Rs 115.97

6 Rs 3.48 Rs 119.40

7 Rs 3.58 Rs 122.98

8 Rs 3.69 Rs 126.68

9 Rs 3.80 Rs 130.47

10 Rs 3.91 Rs 134.39

11 Rs 4.03 Rs 138.42

12 Rs 4.15 Rs 142.58

What is the actual interest Rate?

Amount Borrowed : Rs 100

Amount Repaid : Rs 142.58

42.58%

That’s a lot of interest and that’s what people who borrow

on credit card pay

Credit Cards offer you an interesting option

Pay only 5% of the loan

What happens if you pay only 5% of the loan?

Use a Spreadsheet to find out

MonthAmount Borrowed

5% Repaid Balance Loan 3% Interest Loan Balance

Total amount paid

1 100 5 95 2.85 97.85 232.41136432 4.89 92.96 2.79 95.753 4.79 90.96 2.73 93.694 4.68 89.00 2.67 91.675 4.58 87.09 2.61 89.706 4.49 85.22 2.56 87.777 4.39 83.39 2.50 85.898 4.29 81.59 2.45 84.049 4.20 79.84 2.40 82.23

10 4.11 78.12 2.34 80.4711 4.02 76.44 2.29 78.7412 3.94 74.80 2.24 77.0413 3.85 73.19 2.20 75.3914 3.77 71.62 2.15 73.7715 3.69 70.08 2.10 72.1816 3.61 68.57 2.06 70.6317 3.53 67.10 2.01 69.1118 3.46 65.65 1.97 67.6219 3.38 64.24 1.93 66.1720 3.31 62.86 1.89 64.75

Yes, it takes more than 300 months or 25 years to repay if you pay only

5%

Exercise – Using Spread sheet

If you borrow Rs 1000 on your credit card, which charges 3% interest every month and you pay only 10% of the loan outstanding, how many month will it take to repay Rs 1000 and how much will you repay totally?

Now that you have the knowledge of credit card, you can experiment credit card in the game

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