4'4 Installment Loans

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4.4 Installment Loans
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Installment Price Finance Charge

• Installment Plan
• borrow and pay back in parts, including a
  finance charge (usually includes a down payment)
• often used to buy sound system, boat, car,
  furniture
• Finance Charge extra charge to cover cost of
  doing business on installment plan

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Example 1

• A desktop computer system has a cash price of
  1200. To buy it on an installment plan, you pay
  100 down 38 a month for 36 months. Find the
  finance charge. By what percent is the
  installment price greater than the cash price?

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Monthly Installment Payments sometimes you need
to know monthly payment amt or of payments

• Example 2
• The installment price of a set of water skis is
  190. You must pay 50 down make payments for
  16 months. What will be your monthly payments?

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Installment Loans get installment loan from
bank instead of retailer

• Level Payment Plan when everything (including
  down payment) is included divided into equal
  payments
• If interest rate is 1.5 per month, then
  interest for year is 1.5(12) 18
• See loan repayment schedule, bottom p. 152 in
  textbook

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Example 3

• The Winstons borrowed 500 on a one-year simple
  interest installment loan at 18 interest. The
  monthly payments were 45.84. Find the amount of
  interest, amount applied to the principal, and
  the new balance for the first monthly payment

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Wrap It Up