S&P's Financial Focus

Credit Costs

Before you buy on credit, consider the real cost. You need to consider the APR (annual percentage rate) and the finance charge. Both of these rates vary, so comparison shop for the best rate. For example, imagine that you want to purchase a vehicle that costs $6,000. The seller offers you a four-year loan with 14 percent APR, or annual percentage rate. The APR is always shown as a percentage rate. The APR shows how much you are paying for the credit annually. A 14 percent APR means that you will pay $14 for every $100 you borrow.

Your monthly payment is $163.96. Over the life of the loan, you will pay a finance charge of $1,870.08. The finance charge is the total dollar amount you pay to use credit. The $6,000 loan actually costs $7,807.08.

Calculate the Cost Choose an expensive item that you would like to purchase, such as a computer or stereo. Call or visit a seller or use the Internet to learn the price. Calculate the true cost of the item using the following possible terms:

10 percent APR with a 2-year loan

12 percent APR with a 2-year loan

14 percent APR with a 2-year loan

16 percent APR with a 2-year loan

Standard and Poor’s publishes the globally recognized S&P 500® financial index and provides credit ratings. It also gathers financial statistics, information, and news, and analyzes this data to help individuals, companies, and governments make financial decisions. Go to www.standardandpoors.com to learn more about this company.