Understanding the Difference
Between Cash and Credit
Credit: The ability to obtain goods or services before
payment, based on the trust that payment will be made in the
What items can you buy using credit?
Interest: The fee charged by a lender to a borrower for the
use of borrowed money, usually expressed as an annual
percentage of the principal
The amount of interest you pay for your vehicle or house is
based on the amount of the loan
Credit card: A card issued by a financial company giving the
holder an option to borrow funds, usually at point of sale.
Credit cards charge interest and are primarily used for short-term
Interest rate is expressed as Annual Percentage Rate (APR)
You do not have to pay interest if you pay off your credit card bill in
full each month
Credit card balance is $2,000.00
APR is 28%
How much interest will you have to pay in one month?
28%/12 = .023
2,000 *.023= $46.67
•Mortgage Loan of $150,000
•Interest Rate of 7%
•Loan term: 30 years
•How much do you think you will have to pay the
bank in 30 years?
In 30 Years You Will Pay……
Difference between cash and credit
What are the benefits of using cash versus credit?
You are only paying the amount of the sale
What are the benefits of using credit versus cash?
You can buy things that you normally couldn’t buy
Stimulate the economy
Without credit, not too many people would have a home or car