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Learning objective

Explain how changes in interest rates affect businesses that use overdrafts and loans.

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Topic

The economic climate on businesses

Subtopic

Interest rates

Aqa Gcse BusinessInfluences on business

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Quick explanation

Explain how changes in interest rates affect businesses that use overdrafts and loans

  • This point belongs to The economic climate on businesses, especially Interest rates.
  • You need to be able to explain how changes in interest rates affect businesses that use overdrafts and loans.
  • The key ideas to know are interest rates, loan, and overdraft.
  • Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.

Key concepts

interest ratesloanoverdraft

Why it matters

This objective helps connect Interest rates to exam-style questions, flashcards, and revision notes for The economic climate on businesses.

Quick student answer

A small manufacturer has an overdraft of £8,000. The interest rate on the overdraft is 5% per annum. If the rate rises to 7% per annum, calculate the additional interest cost for a 6‑month period.

Direct answer

£80

How it works

Interest = principal × rate × time. Original interest: £8,000 × 0.05 × 0.5 = £200. New interest: £8,000 × 0.07 × 0.5 = £280. Additional cost = £280 – £200 = £80.

Key terms

  • Interest rate: The percentage charged by a lender on the amount borrowed, expressed annually; it determines the cost of borrowing.

Common trap

Misunderstanding interest rate effect on overdraft: The rate changes the interest cost; the principal remains the same unless the overdraft is repaid.

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