Loans serve as a bedrock of the economy and can turn an intimidating purchase price into much smaller, more manageable payments, that allow consumers to plan purchases into the future.
In some case, purchasing an asset such as a home using debt can be cheaper than renting. In other situations, such as a car, it’s a little more complicated...
Module At A Glance
Grade Levels:
7th - 12th
Est. Length:
3-5 Hours (24 slides)
Activities:
4 Activities
Articles:
6 Articles
Languages:
English & Spanish
Curriculum Fit:
Math, Business, Economics, CTE, Social Studies
Standards Alignment:
CEE National Standards, Jump$tart National Standards & Relevant State Standards
Guiding Questions
What are loans and how can you utilize debt?
What are the differences between good and bad debt?
How do companies and governments borrow money?
Are there good and bad types of debt for companies and governments as well?
What are credit scores for large institutions when they want to borrow capital?
How can a company access capital once they have already had an initial public offering?
Enduring Understandings
Good debt helps you achieve growth for a higher earning potential or for an asset that appreciates in value.
Governments and companies borrow capital issuing bonds or other debt instruments.
Bond ratings are like credit scores for large borrowers issued by credit rating agencies.
Bond prices are closely related with interest rates because they are a collection of cash flows which investors discount.
Bond markets provide a massive source of funding for large companies.
Module Vocab & Key Topics
Fixed Income Securities
A type of debt instrument that provides a steady income stream in the form of interest payments (due at predetermined intervals) over the life of the security. Examples include bonds, CDs, and treasury notes.
Bond Yields
The rate of return on a bond calculated as its coupon rate divided by the current market price.
Credit Ratings
An evaluation assigned to bonds based on their creditworthiness and ability to repay investor's capital in full and on time. Generally, higher ratings indicate higher quality and more desirable bonds for investors.
Principal
The amount of capital initially lent to the borrower through the bond.
Face Value
The net present value of all future cash flows related to an existing bond. This is used to show how much the bond owner will receive through maturity.
Coupon
The dollar value of the periodic interest payment promised to bondholders (usually paid semiannually), as calculated by: Coupon ($)=Coupon Rate x Face Value
Yield to Maturity
Maturity is the length of time until the principal is scheduled to be repaid. The yield is the rate of return assuming the investor holds the bond until its maturity date. It rises and falls depending on the market value of bond and number of payments left until maturity.
Internal Rate of Return (IRR)
The rate of return that sets the net present value of an investment equal to zero.
Interest Rate Risk
The risk associated with adverse changes in interest rates over time, causing prices for existing bonds to fall if rates rise or remain constant since new issues will be issued at current market rates which are typically lower than existing issues’ coupon rates.
Inflation Risk
The risk that inflation will erode purchasing power over time and reduce the initial value received from investments with fixed returns such as bonds and other fixed-income securities because they do not provide any protection against inflationary pressures.
Call Provisions
Certain clauses are written into bond contracts that allow issuers to buy back particular outstanding bonds prior to their maturity date under certain conditions such as reaching a preset price, redemption amount, or exceed a specified cap on maximum coupon payments.
Worked Examples
Loans In Action
Four decisions that decide whether a loan is a tool or a trap — the rate you pay, refinancing, which debt to clear first, and the true cost of a payday loan.
Figures current · August 2026
01Good vs bad debt
Not All Interest Is Equal
cost rises with the APRsame dollar borrowed
Borrow the same dollar three ways. In August 2026 a 30-year mortgage runs about 6.65%, a federal undergraduate student loan 6.52%, and a two-week payday loan roughly 391% APR. The number in front of the percent sign is the entire difference between the three.
≈ 59×the payday rate vs a mortgage391% vs 6.65% APR
→The rate, not the loan, decides whether borrowing buys an appreciating asset or just drains cash — the APR is the whole story.
02Refinancing
A Lower Rate Buys Back Interest
saved = interest(r₁) − interest(r₂)r₂ = the new, lower rate
Say you owe $250,000 on a 30-year mortgage at 7.5%. Over the full term that rate piles up about $379,000 in interest. Refinance the same balance and term to 5.5% and the lifetime interest falls to roughly $261,000 — the same house, the same schedule, far less paid to the bank.
→A lower rate shrinks the interest on every remaining dollar, so the same balance over the same term costs about a third less to carry.
03Payoff order
Which Debt to Kill First
interest saved = Σ (balanceᵢ × rateᵢ)pay the top rate first
Say you owe three debts and put $550 a month toward them: $8,000 on a card at 24%, $3,000 at 11%, and $1,000 at 6%. The amount borrowed is fixed — only the order you clear them in changes the interest. Avalanche kills the 24% first; snowball kills the $1,000 first.
$1,085extra interest, smallest-first$2,402 vs $3,487 total
→Paying the highest rate first always clears the least total interest; taking the smallest balance first costs more — here about $1,085 — for the momentum of an early win.
A payday lender charges $15 to borrow $100 for 14 days and calls it a 15% fee. But 14 days is only a twenty-sixth of a year, so annualizing the same fee — multiply by 365 ÷ 14 — turns that 15% into a 391% APR.
391%true annual ratethe "fee" reads as 15%
→A small flat fee on a two-week loan annualizes into a triple-digit APR, because the 365 ÷ term multiplier counts that same charge twenty-six times a year.
Sources (card 1): Freddie Mac Primary Mortgage Market Survey, 30-year fixed 6.65% (week of Aug 20, 2026); U.S. Dept. of Education federal Direct undergraduate loan 6.52% (2026-27); CFPB, a $15-per-$100 two-week payday loan ≈ 391% APR. Cards 2-4 are derived or illustrative from the stated inputs. Checked 2026-08-24.
