Question

multiple choice 1 point
interest rates: another effect that occurs when there is high inflation is it increases the cost of borrowing money for consumers. inflation pushes interest rates higher. an interest rate is the amount a lender charges a borrower and is a percentage of the amount loaned. as interest rates rise, it makes it more expensive and harder for many people to borrow money. high interest rates discourage consumers from buying goods that are often bought with credit such as cars and houses. higher interest rates will also affect credit card holders; consumers with credit card balances will find it more expensive to carry a balance month to month.
samantha wants to buy a new car for $25,000 using a loan. last year, she could have borrowed at a 3% interest rate, but this year, because of high inflation, the rate is 7%.
which decision would make the most financial sense for samantha in this situation?
take the loan now, since higher interest rates mean her monthly payment will be lower
buy the car with a credit card to avoid paying interest on a loan
ignore interest rates, because they do not affect long - term borrowing
wait to purchase the car, because higher interest rates make borrowing more expensive

Explanation:

• Option 1: Higher interest rates increase the cost of borrowing, so monthly payments on a loan would be higher, not lower. Eliminate this.
• Option 2: Credit cards also have interest rates, and with high inflation pushing rates up, using a credit card would still involve paying interest (likely higher now), so this doesn't avoid interest. Eliminate this.
• Option 3: Interest rates do affect long - term borrowing (like a car loan). The statement is incorrect. Eliminate this.
• Option 4: Since higher interest rates make borrowing more expensive (as explained in the passage: inflation pushes rates up, making it costlier to borrow), waiting to purchase when rates might be lower (or at least understanding the cost) makes financial sense. This option is correct.

Answer:

Wait to purchase the car, because higher interest rates make borrowing more expensive