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Smart Sally investigates some other ways to obtain finance. This table shows the monthly repayments her bank requires on a personal loan.

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$516.15

$184.19 $245.58
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$1032.30

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3 years.

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Sally wishes to borrow

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Why do the repayments with the finance company look smaller than those with the bank? How much more will it cost Sally to borrow the money from the finance company than from the bank?

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Internet research activity

What you have to do

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Obtain a copy of the 'Getting your own wheels' worksheet, which is available on the Teacher's Resource CD. Use the weblink on the Companion website to find the answers to the questions on the worksheet.

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Finance companies usually charge simple interest on their loans. When you borrow money with a simple interest loan, you pay the same amount of interest every year irrespective of the amount you have repaid the finance company.

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A formula for simple interest

Example 2
Daniel borrows $qOOO from a finance company for 4 years at 87o Per annum (p.a.) simple interest. How much interest will he pay during the 4-year loan?

Solution 2
Formula for simple interest = P x r x
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P=9000.r=
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andn=4.

SI=9000a

2880

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The simple interest is $2880.

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