Section 4C Loan Payments, and Credit Cards

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4-C
Section 4CLoan Payments, and Credit Cards
Pages 250-264
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4-C
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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4-C
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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4-C
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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4-C
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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4-C
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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4-C
Suppose you want to pay off a loan with regular
(equal) monthly payments in a certain amount of
time. Use Loan Payment Formula (pg 252)
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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4-C
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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4-C
CALCULATOR
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4-C

• The Loan Payment Formula (pg 252) can be used for
• student loans
• fixed rate mortgages
• credit card debt
• auto loans

More Practice . . .
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4-C
A student loan of 25,000 at a fixed APR of 10
for 20 years a) Determine the monthly
payment. b) Determine the total payment over the
term of the loan. c) Determine how much of the
total payment over the loan term goes to
principal and how much to interest.
241.26
CALCULATOR
Total Payment 241.26 12 20 57,902.40
Principal Payment 25,000 Interest Payment
57,902.40 25,000 32,902.40
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4-C
A home mortgage of 100,000 with a fixed APR of
8.5 for 30 years. a) Calculate the monthly
payment. b) Calculate the portions of the
payments that go to principal and to
interest during the first 3 months. Use a table.
768.91
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4-C
Suppose you have a credit card balance of 2500.
The credit card APR is 18 and you want to pay
it off in 1 year. Determine the monthly payment
assuming you make no more credit card purchases.
229.20
Total Payment 229.20 12 2750.40
Principal Paid 2500 Interest Paid 2750.40
2500 250.40
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4-C
You need to borrow 10,000 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 year loan at 7.5 or a 5
year loan at 8.
Which option is best for you?
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4-C
You need to borrow 10,000 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,
308.77
308.77 12 3 11,115.79
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4-C
You need to borrow 10,000 to buy a car and you
determine that you can afford monthly payments of
220. The bank offers three choices a 4 year
loan at 7.5 or
241.79
241.79 12 4 11,605.90
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4-C
You need to borrow 10,000 to buy a car and you
determine that you can afford monthly payments of
220. The bank offers three choices a 5 year
loan at 8.
202.76
202.76 12 5 12,165.60
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4-C
You need to borrow 10,000 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 year loan at 7.5 or a 5
year loan at 8.
308.77
308.77 12 3 11,115.79
241.79 12 4 11,605.90
241.79
202.76
202.76 12 5 12,165.60
Which option is best for you?
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4-C

• 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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4-C
You need a loan of 80,000 to buy a home. In
each of the two choices, calculate your monthly
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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4-C
You need a loan of 80,000 to buy a home. In
each of the two choices, calculate your monthly
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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4-C
You need a loan of 80,000 to buy a home. In
each of the two choices, calculate your monthly
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.
23
4-C
You need a loan of 80,000 to buy a home. In
each of the two choices, calculate your monthly
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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4-C
Homework Pages 265-267 16, 28, 30, 40, 44, 46