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Calculate Monthly Payments and Finance Charges on Installment Loans

This guide helps you calculate monthly payments and finance charges for installment loans, using a practical example of a $3,500 loan with a 12% interest rate over 30 months. Learn how to determine the distribution of interest and principal through a repayment schedule and understand the impact of early payments on your loan. Explore useful resources for calculators and current rates, and find strategies to save money by making larger principal payments. With step-by-step instructions, this serves as a comprehensive resource for managing your loan effectively.

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Calculate Monthly Payments and Finance Charges on Installment Loans

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  1. Warm UP Problem • Use graphic calculator or website • What is the monthly payment and finance charge on the following loan? • $3,500 – NO Down Payment • 12% • 30 months • 135.62 – Monthly Payment • 135.62 x 30 = Amount repaid= 4068.60 • 568.60 = 4068.60 – 3500 = Finance Charges

  2. 8.4 Installment Loans Objective: calculate the payment to interest, payment to principal, and new balance

  3. Key Terms • Repayment Schedule- shows the distribution of interest and principal over the life of a loan

  4. Paying off a mortgage early! • http://www.yourmoneypage.com/home/bigloan4a.php • www.psecu.com-- current rates and calculator • Monthly Payment = Principal + Interest • P and I • P& I

  5. Example One page 316 • Follow the steps • Find the interest for the first payment: • I = P x R x T • I = 1800 x .08 x 1/12 = 12 • Find P and I = Monthly Payment of 307.08 – 12 = 295.08, where P is $295.08 and I is $12. • New Principal after first payment 1800 – 295.08 = 1504.92 • Concept check 1 • 10.03 ( second months interest) • 297.05 ( second months principal) • 1,207.87 ( new balance at the end of month two)

  6. Example 2, page 317 • Follow Steps • Why is the interest so much less for the 21st payment? • Concept check page 317, problem #4 • 80 • 8000 x .12 x 1/12 = 80 • 32.22 • 3222.44 x .12 x 1/12 = 32.22

  7. Determine the missing amounts • Page 318 • Monthly Payment = Principle + Interest (P & I) • Problem 5 • A. 1,105.44 = Solution: 1200 – 94.56 • Problem 6 • A. 28.83, B. 179.12, C. 3,280.88 Solutions: • A. 3460 x .10 x 1/12 = 28.83 • B. 207.95 – 28.83 = 179.12 • C. 3460 – 179.12 = 3280.88

  8. Closure: How can you save money on an installment loan?? • I= P x R x T • Suggestions • Make larger principal payments • What is the P and I?

  9. Homework page 318 • Complete problems 8- 15 • Solution 8 • 1435.30 – 198.77= 1236.53 • Solution 9 • 213.12- 12.37 = 200.75 • Solution 10 • 1035.78 x .12 x 1/ 12 = 10.36

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