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Simple Interest Installment Loans

SECTION. 8-3. pp. 290-293. Simple Interest Installment Loans. Figure out: monthly payment on an installment loan total amount repaid on an installment loan finance charge on an installment loan. Section Objective. Key Words to Know. simple interest installment loan (p. 290)

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Simple Interest Installment Loans

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  1. SECTION 8-3 pp. 290-293 Simple Interest Installment Loans

  2. Figure out: • monthly payment on an installment loan • total amount repaid on an installment loan • finance charge on an installment loan Section Objective

  3. Key Words to Know simple interest installment loan (p. 290) A loan repaid with equal monthly payments. annual percentage rate (p. 290) An index showing the cost of borrowing money on a yearly basis, expressed as a percent.

  4. Formula 1 Monthly Payment = Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan

  5. Formula 2 Total Amount Repaid = Number of Payments × Monthly Payments

  6. Formula 3 Finance Charge = Total Amount Repaid – Amount Financed

  7. A Picture Perfect Loan p. 290 What do you think a bank looks for in a client who wants to take out a personal loan?

  8. Example 1 Carla Hunt obtained an installment loan of $1,800.00 to purchase some new furniture. The annual percentage rate is 8 percent. She must repay the loan in 18 months. What is the finance charge?

  9. Example 1 Answer: Step 1 Find the monthly payment. Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan $1,800.00 ÷ $100.00 × $5.91 = $106.38

  10. Example 1 Answer: Step 2 Find the total amount repaid. Number of Payments × Monthly Payment 18 × $106.38 = $1,914.84

  11. Example 1 Answer: Step 3 Find the finance charge. Total Amount Repaid – Amount Financed $1,914.84 – $1,800.00 = $114.84

  12. Example 2 Tulio and Lupe Fernandez purchase a refrigerator with an installment loan that has an APR of 12 percent. The refrigerator sells for $1,399.99. The store financing requires a 10 percent down payment and 12 monthly payments. What is the finance charge?

  13. Example 2 Answer: Step 1 Find the amount financed. Selling Price – Down Payment $1,399.99 – (0.10 × $1,399.99) $1,399.99 – $140.00 = $1,259.99

  14. Example 2 Answer: Step 2 Find the monthly payment. (Refer to the Monthly Payment on a Simple Interest Installment Loan of $100 on page 799 in your textbook). Amount of Loan ÷ $100 × Monthly Payment for a $100 Loan $1,259.99 ÷ $100.00 × $8.88 = $111.887 or $111.89

  15. Example 2 Answer: Step 3 Find the total amount repaid. Number of Payments × Monthly Payment 12 × $111.89 = $1,342.68

  16. Example 2 Answer: Step 4 Find the finance charge. Total Amount Repaid – Amount Financed $1,342.68 – $1,259.99 = $82.69

  17. Practice 1 A new heating and air conditioner will cost the Sangjun family $4,800. They make a down payment of 20 percent and finance the remaining amount. They obtain an installment loan for 36 months at an APR of 14 percent.

  18. Practice 1 (cont.) a. What is the down payment? b. What is the amount of the loan? c. What are the monthly payments? d. What is the finance charge?

  19. Practice 1 Answer a. Down payment: $960 b. Amount of the loan: $3,840 c. Monthly payments: $131.33 d. Finance charge: $887.88

  20. END OF SECTION 8-3 Simple Interest Installment Loans

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