Credit costs | Year 11 | Ascent Library

01 / LEARN

Understand the idea.

Count every required payment

The total cost of credit includes every required payment, not just the advertised instalment. Add the deposit, the full set of instalments and all stated fees. Subtract the cash price from this outlay to identify the extra cost of buying on credit.

Check whether a deposit is additional to the quoted instalments and how many instalments are due. A smaller monthly payment can still lead to a larger total if it continues for longer. Keep a count of payments beside each recurring amount.

Read a stated interest method

A flat simple-interest loan charges interest on the original principal for the entire stated term. A reducing-balance loan instead calculates interest on what remains outstanding. The same numerical rate does not give the same cost under these different methods.

Calculate instalments from the complete repayable amount only when the supplied arrangement calls for equal payments. Include stated fees in that amount where required. Do not add real credit-card or loan conditions that are absent from the simplified question.

02 / WORKED EXAMPLES

See the method in action.

EXAMPLE 01

Worked example

A laptop has cash price AUD 1200. Credit requires AUD 200 deposit,12 monthly payments of AUD 92 and a AUD 30 fee. Find total paid and extra cost.

Worked solution

1
Total the monthly instalments.
$M = 12 (92) = AUD 1104$
All twelve required payments count towards the purchase outlay.
2
Include the deposit and fee.
$C = 200 + 1104 + 30 = AUD 1334$
The deposit and establishment fee are additional payments.
3
Compare with the cash price.
$C_{extra} = 1334 - 1200 = AUD 134$
Extra credit cost is the amount paid beyond the stated cash purchase price.

Answer

AUD 1334 total; AUD 134 extra

EXAMPLE 02

Worked example

A AUD 3000 loan charges 8% flat simple interest for 2 years plus a AUD 60 fee. No deposit. Find 24 equal monthly payments.

Worked solution

1
Calculate the flat simple interest.
$I = 3000 (0.08) (2) = AUD 480$
The original principal is charged 8% for each of the two years under the flat method.
2
Find the complete repayable amount.
$A = 3000 + 480 + 60 = AUD 3540$
Repayment covers the principal, the flat interest and the supplied fee.
3
Divide across the monthly instalments.
$R = \frac{3540}{24} = AUD 147.50$
The whole repayable amount is shared equally across the stated 24 payments.
4
Check the payment total.
$24 (147.50) = 3540$
The equal instalments exactly repay the modelled total, with no separate deposit.

Answer

AUD 147.50

03 / YOUR TURN

Try it yourself.

Check your understanding

Cash price AUD 900; credit total AUD 1014. Find extra credit cost.

Show answer & reasoning

AUD 114.00

Subtract the cash price from the complete credit outlay: $1014 - 900 = AUD 114.00$ . This difference is the extra cost of choosing the supplied credit arrangement.

Keep practising

6 worksheet questions · 12 marks

Open worksheet Worked solutions

Read the questions online

Cash price AUD 1500; deposit AUD 300 and 18 payments of AUD 75. Find total paid and extra cost.
2 marks
AUD 2400 is borrowed at 6% flat simple interest for 3 years. Find interest.
2 marks
Total repayment AUD 3780 is split into 36 equal payments. Find each payment.
2 marks
An advertised offer is 24 payments of AUD 48 plus AUD 40 fee for a cash-price AUD 1000 item. Find extra cost.
2 marks
A simplified credit balance of AUD 800 incurs 1.5% interest for a month before a AUD 100 repayment. Find the new balance.
2 marks
Why is an 8% flat rate not directly comparable with 8% reducing balance?
2 marks

Read the worked solutions

Equivalent correct methods earn the corresponding marks. Include units where asked.

Cash price AUD 1500; deposit AUD 300 and 18 payments of AUD 75. Find total paid and extra cost.
2 marks
$300 + 18 \times 75 = 1650$ .
$1650 - 1500 = 150$ .
AUD 1650 total; AUD 150 extra
AUD 2400 is borrowed at 6% flat simple interest for 3 years. Find interest.
2 marks
$2400 \times 0.06 \times 3 = 432$ .
AUD 432.00
Total repayment AUD 3780 is split into 36 equal payments. Find each payment.
2 marks
$\frac{3780}{36} = 105$ .
AUD 105.00
An advertised offer is 24 payments of AUD 48 plus AUD 40 fee for a cash-price AUD 1000 item. Find extra cost.
2 marks
$24 \times 48 + 40 = 1192$ .
$1192 - 1000 = 192$ .
AUD 192.00
A simplified credit balance of AUD 800 incurs 1.5% interest for a month before a AUD 100 repayment. Find the new balance.
2 marks
$Interest = 800 \times 0.015 = 12$ .
$New balance = 800 + 12 - 100 = 712$ .
AUD 712.00
Why is an 8% flat rate not directly comparable with 8% reducing balance?
2 marks
Flat interest keeps using the original amount; reducing-balance interest uses what remains outstanding.
The rates act on different principal amounts over time.

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Curriculum reference & lesson scope

SACE Board of South Australia

Stage 1 General Mathematics: investing and borrowing. Supplied educational models cover interest, investment comparisons, shares and credit; they are not recommendations of real products or statements of personal tax liability.

Official curriculum source ↗

In this lesson

Understand the idea.

Count every required payment

Read a stated interest method

See the method in action.

Worked example

Total the monthly instalments.

Include the deposit and fee.

Compare with the cash price.

Worked example

Calculate the flat simple interest.

Find the complete repayable amount.

Divide across the monthly instalments.

Check the payment total.

Try it yourself.

Check your understanding

Keep practising