Section 4D Loan Payments, and Credit Cards

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Section 4DLoan Payments, and Credit Cards
Pages 269-289
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Loan Basics
The principal is the amount of money owed at any
particular time.
Interest is charged on the loan principal.
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pp269-270 Suppose you borrow 1200 at an annual
interest rate of APR 12Show the balance of
the loan if you pay only the interest due for 6
months.
BAD IDEA
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pg270 Suppose you borrow 1200 at an annual
interest rate of APR 12Show the balance of
the loan if you pay 200 toward principal plus
interest for 6 months.
VARYING PAYMENT AMOUNTS
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pg270 Suppose you borrow 1200 at an annual
interest rate of APR 12Show the balance of
the loan if you pay 200 for 6 months.
INSTALLMENT LOAN
increasing
decreasing
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Loan Basics
The principal is the amount of money owed at any
particular time.
Interest is charged on the loan principal.
To pay off a loan, you must gradually pay down
the principal. Each payment should include all
the interest plus some amount that goes toward
paying off the principal.
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Suppose you want to pay off a loan with regular
(equal) monthly payments in a certain amount of
time. Use Loan Payment Formula (pg 271)
PMT equal regular payment
P starting loan principal (amount borrowed)
APR annual percentage rate (as a decimal)
n number of payment periods per year
Y loan term in years
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pg270 Suppose you borrow 1200 at an annual
interest rate of APR 12How much should you
pay each month in order to pay off the loan in 6
months.
CALCULATOR
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CALCULATOR
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• The Loan Payment Formula (pg 271) can be used
  for
  
• student loans
• fixed rate mortgages
• credit card debt
• auto loans

More Practice . . .
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15/265 A student loan of 25000 at a fixed APR
of 10 for 20 years a) Determine the monthly pay
ment. b) Determine the total payment over the te
rm of the loan. c) Determine how much of the tot
al payment over the loan term goes to princi
pal and how much to interest.
241.26
CALCULATOR
Total Payment 241.26 x 12 x 20 57902.40
Principal Payment 25000 Interest Payment 579
02.40 25000 32902.40
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35/265 A home mortgage of 100000 with a fixed
APR of 8.5 for 30 years. a) Calculate the mont
hly payment. b) Calculate the portions of the pa
yments that go to principal and
to interest during the first 3 months. Use
a table.
768.91
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29/265 Suppose you have a credit card balance of
2500. The credit card APR is 18 and you want t
o pay it off in 1 year. Determine the monthly
payment assuming you make no more credit card
purchases.
229.20
Total Payment 229.20 x 12 2750.40
Principal Payment 2500 Interest Payment 2750
.40 2500 250.40
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37/265 You need to borrow 10000 to buy a car
and you determine that you can
afford monthly payments of 220. The bank offers
three choices a 3 year loan at 7, a 4 y
ear loan at 7.5 or a 5 year loan at 8.
308.77
308.77 x 12 x 3 11115.79
241.79 x 12 x 4 11605.90
241.79
202.76
202.76 x 12 x 5 12165.60
Which option is best for you?
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• Home Mortgages may be more complicated
• interest rate (lower)
• down payment
• closing costs
• direct fees
• points (each point is 1 of the loan amount)

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53/265 You need a loan of 80000 to buy a home.
In each of the two choices, calculate your monthl
y payments and total closing costs.
Choice 1 30 year fixed rate at 7.25 with
closing costs of 1200 and 1 point.
Choice 2 30 year fixed rate at 6.75 with
closing costs of 1200 and 3 points.
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Homework Pages 284-287 26, 36, 38, 40, 50,
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