Personal Debt and Borrowings Tutorial

Part 1: Interest

1. Click on the following links and identify the APR for each of the following store
cards. Which store card offers the best rate?

Marks and Spencer

Debenhams
New Look

2a. £60,000 is borrowed for 2 years. Interest is 10% and compounds annually.
No repayments are made during the lending period. What is the total interest
that will be incurred over the two year period?

2b. What would be the total interest incurred if the interest was not
compounded?

2c. What would be the total interest incurred if the interest was compounded
quarterly? (Note: Remember compounding interest means interest is charged
on any unpaid interest. In this example interest is compounded quarterly, so
each quarter the interest charge will be based on the principal sum plus any
unpaid interest of previous quarters)

Part 2: Debt Application

Mark has decided to take out a £10,000 loan to finance the purchase of a new
car. Mark would like to pay the loan back over 5 years but would like the
option to do this earlier if he can afford to. Mark would prefer to know his
payments with certainty. He has run a search on the internet to identify
potential loan products and the details of these are provided below.

Initial Fixed or Maximum Term Early

APR Variable Amount Repayment
Charges
Bank A 5.68% Fixed £9,000 5 Years No
Bank B 5.70% Variable £10,000 5.5 Years Yes
Bank C 5.78% Variable £12,000 5 Years No
Bank D 5.99% Fixed £10,000 5 Years Yes
Bank E 6.25% Fixed £12,500 5 Years No
Bank F 6.55% Fixed £15,000 5 Years No

Complete the online activity to guide you through the steps in identifying two
possible loan products for Mark. Once you have these, recommend the product
you think is most suitable for Mark. You should explain your reasons for this
choice.