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# Interest Rates

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### Interest Rates

1. 1. Interest Rates
2. 2. What Is an interest rate? <ul><li>Interest Rates are a percentage of the money borrowed that is paid to the lender as a price for borrowing a given amount of money. </li></ul><ul><li>Ex: A person lends you \$1000 and you promise to pay the money back in 1 year. The lender requires you to also pay a 5% interest rate on the money you borrowed. This example looks like this: </li></ul><ul><li>\$1000(1.05)= \$1050 </li></ul><ul><li>The \$50 is both the charge to the borrower and the profit for the lender. </li></ul><ul><li>Also the longer the payback period the more money paid in interest. </li></ul>
3. 3. How do interest rates affect students? <ul><li>Students loans </li></ul><ul><ul><ul><li>Realize what the interest rate you will pay on your student loans will be. </li></ul></ul></ul><ul><ul><ul><li>A student loan of \$10,000 at an 8.5% interest rate and over a 10 year term will cost you \$4877.99 in interest for a total payback of \$14,877.99. </li></ul></ul></ul><ul><ul><ul><li>You will be paying 1 and a half times what you originally borrowed </li></ul></ul></ul><ul><ul><ul><li>If you had a lower interest rate such as 6.8% it would turn out different and you would be paying \$3809.66 in interest just over \$1000 less </li></ul></ul></ul><ul><ul><ul><li>Knowing this it is important to find an interest rate that works and is affordable for you and not just taking the first loan you can get. DO YOUR HOMEWORK!! </li></ul></ul></ul>
4. 4. How do interest rates affect students cont. <ul><li>Credit Card Debt </li></ul><ul><ul><ul><li>Many college students use credit cards as a source of cash they typically the don’t have. </li></ul></ul></ul><ul><ul><ul><li>Because of the high risk to the lenders(credit card companies) the interest rates on credit cards tend to be very high. </li></ul></ul></ul><ul><ul><ul><li>Ex: If a student runs up a \$1000 on a credit card that charges 18% it will take just over 50 years to pay off that \$1000 if you pay just a minimum payment of \$15 a month. </li></ul></ul></ul><ul><ul><ul><li>On that same problem you would pay \$9015 in interest alone. </li></ul></ul></ul>
5. 5. What controls interest rates? <ul><li>The Federal Reserve system is responsible for the control of subsidized loan interest rates. These rates are determined by many macroeconomic factors as the government attempts to control and stabilize the market. Car and mortgage Loans are affected greatly. </li></ul><ul><li>Credit Cards are Unsubsidized therefore have a much higher Interest rate, due to the risk to the lender. </li></ul><ul><ul><li>Credit card lenders look at your credit report to decide how risky you are and will offer you a rate based on that risk level. </li></ul></ul><ul><ul><li>The lower the risk the lower the rate. </li></ul></ul>
6. 6. Things to think about… <ul><li>Always know the interest rates that come with your loan and why they are what they are. </li></ul><ul><li>Shop around in order to find an interest rate that works for you. </li></ul><ul><li>Don’t borrow if you can’t afford to pay the interest as well as the money borrowed. </li></ul>

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