Consumer Credit Lab
Investigate how APR, loan term, and payment strategy affect borrowing costs. Compare scenarios, collect data in a table, and write up your findings in a lab report.
Guided Experiment: The Cost of Borrowing
How does the APR affect total interest paid on a $30,000 student loan over 10 years? Predict what happens when APR goes from 5% to 7% to 9%.
Write your hypothesis in the Lab Report panel, then click Next.
Loan Overview
Controls
Analysis
Data Table
(0 rows)| # | Scenario | Balance($) | APR(%) | Monthly Payment($) | Months | Total Interest($) | Total Paid($) |
|---|
Reference Guide
PMT Formula
The standard loan payment formula calculates the fixed monthly amount that fully amortizes a loan.
P is the principal, r is the monthly rate (APR/12), and n is the total number of payments.
APR and Total Cost
APR (Annual Percentage Rate) determines how much interest accrues each month. Even small rate differences compound over time.
A 2% difference in APR on a $300,000 mortgage can mean over $100,000 in additional interest over 30 years.
Minimum Payment Trap
Credit card minimum payments (typically 2% of balance or $25) shrink as the balance decreases. This means less and less of each payment goes toward principal.
Result: a $5,000 balance at 22% APR takes over 20 years with minimums. Paying a fixed $200/month clears it in under 3 years.
Short vs Long Terms
A shorter loan term means higher monthly payments but dramatically less total interest. A 15-year mortgage at 7% costs far less total than a 30-year at the same rate.
The trade-off is monthly budget flexibility. Longer terms have lower payments but you pay much more over the life of the loan.
