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.
   • Card rates rose in 2023 because inflation rose, so higher inflation pushed the real rate up.
   • The real card rate was highest in 2022, because inflation was highest on the card that year.
   • 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.
   • Personal loan rates rose faster than card rates over the five years, so the two rates moved closer.
   • 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.
4. 3.

   Milo lists four claims about the card. Which claim goes beyond what the card shows?

   • Inflation on the card was higher in 2022 than in the other four years.
   • In 2025 each card account was charged interest of about 22.3%.
   • The card rate for accounts assessed interest averaged 22.32% in 2025, up from 16.45% in 2021.
   • The 24-month personal loan rate in 2025 was 11.50%, below its 2024 level of 12.27%.

5. 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.

6. 4.

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

   • Paying down the card gives a real return near 20%; savings gives about 1.4%, so the card comes first on cost.
   • The two are equal, because the same 2.6% inflation applies to both and so the choices cancel out.
   • 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.

7. 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.

8. 5.

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

   • Guaranteed: both 5% loans must cost the same, since they have the same APR and the same $9,000 amount.
   • Not guaranteed: Loan C has the highest APR yet costs less in total interest than the 5% Loan A.
   • Guaranteed: Loan B costs more than the 5% loans, so the lowest APR wins in a direct comparison.
   • Not guaranteed: Loans A and D share the lowest APR, yet A costs $487 more because it runs 24 months longer.
9. 6.

   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 D, at $207 a month, because it has the lowest total interest and therefore the lowest payment too.
   • 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.
10. 7.

    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?

    • 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.
    • 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.
11. 8.

    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?

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

12. Card

    a writer's claim (made up for practice). "Card rates rose from 2022 to 2023 because the Federal Reserve raised its own rates in those years." The writer cites only the two years 2022 and 2023.

13. 9.

    Which added evidence would best test the writer's claim, Ren?

    • The names of the banks that charged those card rates, to see which banks led the increase.
    • The Federal Reserve's rates and card rates over many years, to see if they moved together.
    • Card rates in 2023 alone, checked against more cards, to confirm that they rose that year.
    • The number of cards issued in 2023, since a rise in cards could also explain a rise in rates.
14. 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 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.
    • About 6 more months and about $6 more in interest, since the APR rose 6 points.