Credit and debt: interest rates, credit scores and loans

Grade 12 Social Studies Worksheet - Challenge Me

Circle the best answer.

1. Read this first

   Use the table

   Borrowing rates and inflation, 2021 to 2025 (real data: Federal Reserve G.19 annual averages for commercial banks; BLS CPI-U)

   Year	Card rate	24-month personal loan rate	Inflation
   2021	16.45%	9.38%	4.7%
   2022	17.91%	9.87%	8.0%
   2023	22.15%	11.87%	4.1%
   2024	22.89%	12.27%	2.9%
   2025	22.32%	11.50%	2.6%

   The card rate is the average for accounts assessed interest. Inflation is the percent change in the CPI-U annual average from the year before. The real rate is about the rate minus inflation.

2. 1.

   Jun reads the card for a report on borrowing costs. Which claim does the card support best?

   • The real card rate fell after 2022, because the nominal card rate stayed above 16% in each year.
   • The real card rate was highest in 2022, because inflation was highest on the card that year.
   • Card rates rose in 2023 because inflation rose, so higher inflation pushed the real rate up.
   • From 2022 to 2023 card rates rose and inflation fell, so the real card rate rose by about 8 points.
3. 2.

   Ari compares the card rate with the personal loan rate across the years. Which claim does the card support?

   • The gap shows that a personal loan is cheaper than a card for any borrower who wants credit.
   • The gap narrowed after 2023, as personal loans became dearer than they had been before.
   • The card-versus-loan rate gap widened from about 7 points in 2021 to nearly 11 in 2025.
   • Personal loan rates rose faster than card rates over the five years, so the two rates moved closer.

4. Two uses of an extra $100 in 2025 (card rate: Federal Reserve G.19; inflation: BLS CPI-U; savings rate made up)

   Choice	Yearly rate	Inflation
   Pay down a card balance	22.3%	2.6%
   Keep the money in savings	4.0%	2.6%

   Paying down a card balance avoids interest at the card rate. A savings deposit earns its rate. Compare the choices in real terms, as rate minus inflation. Ignore taxes and risk.

5. 3.

   Pia compares the two choices in real terms, as the card says. Which comparison is correct?

   • The card, with a real return of about 22.3%, since inflation raises the amount that the borrower owes.
   • Savings, because a real return of 1.4% is positive and a card's 22.3% is a nominal rate that cannot be compared.
   • The two are equal, because the same 2.6% inflation applies to both and so the choices cancel out.
   • Paying down the card gives a real return near 20%; savings gives about 1.4%, so the card comes first on cost.

6. Four $9,000 car loans (example figures, made up for practice)

   Loan	APR	Months	Monthly payment	Total interest
   Loan A	5%	72	$145	$1,436
   Loan B	8%	48	$220	$1,546
   Loan C	11%	36	$295	$1,607
   Loan D	5%	48	$207	$949

   Each loan is for an adult buyer and is paid off on schedule.

7. 4.

   Esme says the lowest APR guarantees the lowest cost. Which verdict does the card support?

   • Not guaranteed: Loan C has the highest APR yet costs less in total interest than the 5% Loan A.
   • Not guaranteed: Loans A and D share the lowest APR, yet A costs $487 more because it runs 24 months longer.
   • Guaranteed: both 5% loans must cost the same, since they have the same APR and the same $9,000 amount.
   • Guaranteed: Loan B costs more than the 5% loans, so the lowest APR wins in a direct comparison.
8. 5.

   A buyer needs the lowest monthly payment. Which choice and trade-off does Bo point out?

   • Loan A, at $145 a month, with $487 more in interest than Loan D would cost.
   • Loan B, at $220 a month, because it is in the middle of the group on both payment and interest.
   • Loan C, at $295 a month, because its short term means the buyer pays the least in total interest.
   • Loan D, at $207 a month, because it has the lowest total interest and therefore the lowest payment too.
9. 6.

   There are no new purchases, and interest is figured each month on the balance still owed. Kira compares APRs of 12% to 30% on the same $1,000 balance. Which conclusion does the table support?

   • A higher APR shortens the payoff, because lenders push borrowers to pay faster at a higher rate.
   • A higher APR adds little time but a lot of interest, so watching only the months hides the cost.
   • At 30% the debt takes twice as long to pay off as at 12%, so the cost doubles with the time.
   • The months rise as fast as the interest, since a higher APR drives both of them in the same way.

10. Card

    a lender's records (made up for practice). On secured car loans, 2 of every 100 borrowers stop paying, and the lender recovers 60% of what is owed by taking the car. On unsecured loans, 6 of every 100 stop paying, and the lender recovers 20% of what is owed.

11. 7.

    Noah compares the expected loss per $100 lent. Which statement fits the card?

    • Both kinds lose the same, since the default rate and the recovery rate differ by similar factors.
    • Unsecured loans lose about $6 per $100, since 6 of each 100 borrowers stop paying.
    • Unsecured loans lose about $4.80 per $100, secured about $0.80, so unsecured need a higher rate.
    • Secured loans lose about $1.20 per $100, since 2 borrowers default and the lender recovers 60%.

12. Card

    Credit scores (the Consumer Financial Protection Bureau's description, in our words, plus one made-up claim). A credit score is a prediction of credit behavior based on credit reports. Most scores range from 300 to 850. Scoring models consider bill-paying history, how much of the available credit is used, and how long loan accounts have been open.

13. 8.

    Luz checks four statements against the card. Which statement goes beyond what the card says?

    • How much of the available credit is used is one factor that scoring models consider.
    • Most credit scores range from 300 to 850, and a score is a prediction.
    • Paying a card balance down will raise a score by exactly 30 points.
    • How long loan accounts have been open is among the factors that scoring models consider.
14. 9.

    An adult has $100 extra this month beyond both minimum payments. Ignore fees and taxes. Tala decides where the extra $100 should go if the aim is the lowest total interest. Which choice fits the card?

    • On the card: each dollar there avoids interest at 24% a year, against 8% on the loan.
    • On the loan: it has the larger balance, so each dollar paid cuts more interest there.
    • Split it evenly: $50 each keeps both balances falling at the same pace over the year.
    • On the loan, since paying a large balance sooner lowers its minimum payment at once.
15. 10.

    There are no new purchases, and interest is figured each month on the balance still owed. Zee compares the 18% and 24% rows. Which description of the move from 18% to 24% fits the table?

    • About 6 more months and about $6 more in interest, since the APR rose 6 points.
    • About 2 more months and about $2 more in interest, since the months and dollars rise together.
    • About 2 more months but $92 more in interest, from $198 to $290.
    • No extra cost, since both are paid off at the same $50 a month.