The idea, step by step
Count every required payment
A credit arrangement changes when money is paid, not just how much is paid at the start. Add the deposit, all instalments and the stated fees to find total outlay. The extra cost of credit is that total minus the cash price.
A monthly instalment by itself is not a total cost. Record the number of instalments, whether a deposit is additional, and any establishment or closing fee. A small payment over a long term can still be costly.
Read a stated interest method
Flat simple interest charges interest on the original principal for the whole stated term. Reducing-balance interest uses the outstanding balance after repayments. Equal-looking rate percentages need not produce equal credit costs under different methods.
Only calculate what the supplied model determines. For a credit-card balance, specify whether new purchases, interest-free days and minimum payments are included. We use transparent simplified examples, not real contract terms.
A common trap
Interest rate alone tells the total borrowing cost.
Instead: The principal, term, interest method, fees and repayment timing are also needed.
See the thinking
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.
- Instalments=12×92=1104.
- Total=200+1104+30=1334.
- Extra=1334−1200=134.
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.
- Interest=3000×0.08×2=480.
- Total repayable=3000+480+60=3540.
- Monthly payment=3540/24=147.50.
Check your understanding
Cash price AUD 900; credit total AUD 1014. Find extra credit cost.
Show answer
AUD 114.00
1014−900=114.
Your turn
6 questions · 12 marks · Work at your own pace.
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+18×75=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
2400×0.06×3=432.
AUD 432.00 - Total repayment AUD 3780 is split into 36 equal payments. Find each payment.2 marks
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
24×48+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=800×0.015=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.
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 ↗