Credit · Lesson Plan
Where to Borrow — and What It Costs
Almost every lesson about credit is about credit cards. This one is about the choice before that: who is willing to lend you money, and what each of them charges for it. Students borrow the same amount from three lenders and watch the cost change with nothing else about the purchase changing — then meet the payday loan, which does not quote a rate at all, and convert its fee into an APR so it can be compared with everything else on the page.
For Teachers
Lesson at a glance
- Topic
- Credit
- Grade Level
- Grades 9–12
- Resource Type
- Lesson + Worksheet
- Estimated Time
- 45–60 minutes
- Format
- Worked example + worksheet
- Materials
- Worksheet, calculators, whiteboard or projector
What Students Learn
Learning objectives
- Identify the main sources of consumer credit — credit unions, banks, credit cards, store cards, payday lenders, buy now pay later, and federal student loans
- Match a borrowing situation to the lender a person would realistically use
- Calculate the cost of borrowing using simple interest, and compare the same purchase across three interest rates
- Explain what the extra money buys when a higher-rate lender is chosen
- Convert a flat fee into an annual percentage rate, and use APR to compare loans that are quoted differently
- Describe how rolling over a payday loan increases the cost without reducing the amount owed
- Propose realistic alternatives to high-cost short-term borrowing
Materials
What you’ll need
- Printed copies of the worksheet (one per student)
- Calculators
- Whiteboard or projector for the worked example
- Pens or pencils
Key Terms
Vocabulary
- Credit
- Money borrowed now on a promise to repay it later, almost always with interest.
- Principal
- The amount actually borrowed, before any interest or fees are added.
- Interest
- What a lender charges for the use of its money, usually as a percentage of the principal.
- APR
- Annual Percentage Rate — the yearly cost of borrowing, expressed as a percentage so that loans quoted differently can be compared.
- Simple interest
- Interest calculated only on the principal: principal × rate × time.
- Credit union
- A member-owned financial cooperative that generally lends at lower rates than a commercial lender.
- Store card
- A credit card usable only at one retailer, often opened at the register for a discount and typically carrying a high rate.
- Payday loan
- A small, short-term loan priced as a flat fee and due on the borrower’s next payday.
- Rollover
- Paying a payday lender’s fee again to extend the loan, leaving the original amount owed untouched.
- Buy now, pay later
- Splitting a purchase into a few scheduled payments, usually interest-free if every payment is made on time.
For Teachers
Lesson plan
Estimated time: one 45–60 minute class period.
Lesson sequence
- Warm-up (5 min). Ask the class to name every place a person could get $500 by Friday. Write the list on the board in the order they say it, and leave it up — the order people think of lenders in is rarely the order of what they cost.
- Who lends money (10 min). Work Part 1 together. The point is not the matching, it is the pattern underneath it: the two cheapest lenders on the list take the longest to arrange, and the most expensive is the fastest. Speed is what a borrower is really paying for.
- Same money, three lenders (15 min). Work Part 2. Everyone borrows $600 for the same second-hand refrigerator over the same three months, so the only variable is the rate. Students find the store card costs $29.99 more than the credit union for an identical purchase. Ask question 2 out loud: what did the extra money buy? Nothing. That is the lesson.
- The payday loan (15 min). Work Part 3. A payday lender quotes a fee, not a rate, which is why it cannot be compared to anything until you convert it. Do the APR calculation on the board: a $45 fee on $300 for 14 days is 391.07% APR. Then set it beside the same $300 for the same 14 days on the credit card from Part 2 — about $2.76. Pause on question 6: after four rollovers the borrower has paid $225 in fees over ten weeks and still owes the whole $300.
- Your advice (10 min, or set as homework). Part 4 puts a real decision in front of students. Take answers before giving any — classes usually produce most of the alternatives themselves.
Assessment
Assess the completed worksheet, with particular attention to questions 4 and 6, and participation in the closing discussion.
Extension
Have students find the APR a payday lender is required to post in their own state and compare it to the 391% worked out in Part 3. Rates and rules vary widely by state, and several states do not permit payday lending at all — which is itself worth discussing.
This lesson is for educational purposes only. All figures are simplified teaching examples, not current market rates, and are not financial advice.
Discussion
Discussion questions
- The fastest lender on the worksheet is also the most expensive. Why would that be, and what is the borrower actually paying extra for?
- A store card offers 10% off at the register the day you open it. What would you need to know before deciding whether that is a good deal?
- A payday lender quotes a fee, not an interest rate. Is that dishonest? What does it make harder for a borrower to do?
- Someone pays a payday loan fee four times and still owes every dollar they borrowed. Explain, in your own words, how that happens.
- Name one situation where borrowing is a reasonable decision, and one where it is not. What separates them?
Printable Worksheet
Where to Borrow — Worksheet & Answer Key
Students match lenders to borrowing situations, price one purchase at three interest rates, convert a payday loan’s fee into an APR, and work out what four rollovers cost. Answer key included.
Unlock the full Money Instructor library
Members get unlimited access to worksheets, lesson plans, and teacher resources across every financial literacy topic — budgeting, taxes, credit, banking, and more.
More Credit resources
Credit Rights and Responsibilities Lesson
Who decides whether you get credit, and what protects you once you have it? Students score three applicants on the three C’s, match six situations to the laws that cover them, and work out what a stolen card really costs.
Lesson · Grades 9–12Student Loans 101 Lesson
Students learn student-loan basics — federal vs. private, fixed vs. variable rates, federal loan types, repayment options, and the risks of borrowing for college.
Video Lesson · Grades 9–12Rent-to-Own Lesson
A small weekly payment and no credit check — and more than twice the shop price by the time you own it. Students price one rent-to-own contract against saving up and against a small loan.
Lesson · Grades 9–12Printables & worksheet tools