Section 4C Loan Payments, and Credit CardsPages 250-2644-C

Loan BasicsThe principal is the amount of money owed at any particular time.Interest is charged on the loan principal.4-C

Suppose you borrow $1200 at an annual interest rate of APR = 12% Show the balance of the loan if you pay only the interest due for 6 months.BAD IDEA4-C

Month Prior PrincipalInterest .12/12 = 1%Payment toward PrincipalTotalPaymentNew Principal1$1200$12$0$12$12002$1200$12$0$12$12003$1200$12$0$12$12004$1200$12$0$12$12005$1200$12$0$12$12006$1200$12$0$12$1200

Suppose you borrow $1200 at an annual interest rate of APR = 12% Show the balance of the loan if you pay $200 toward principal, plus interest for 6 months.VARYING PAYMENT AMOUNTS4-C

Month Prior PrincipalInterest .12/12 = 1%Payment toward PrincipalTotalPaymentNew Principal1$1200$12$200$212$10002$1000$10$200$210$8003$800$8$200$208$6004$600$6$200$206$4005$400$4$200$204$2006$200$2$200$202$0

Suppose you borrow $1200 at an annual interest rate of APR = 12% Show the balance of the loan if you pay $200 for 6 months.increasingdecreasingINSTALLMENT LOAN4-C

Month Prior PrincipalInterest 1%Payment toward PrincipalTotalPaymentNew Principal1$1200$12$188$200$10122$1012$10.12$189.88$200$822.123$822.12$8.22$191.78$200$630.344$630.34$6.30$193.70$200$436.645$436.64$4.37$194.63$200$242.016$242.01$2.42$197.58$200$44.43

Loan BasicsThe 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. 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)P = starting loan principal (amount borrowed)PMT = equal regular paymentY = loan term in yearsn = number of payment periods per yearAPR = annual percentage rate (as a decimal)4-C

Suppose you borrow $1200 at an annual interest rate of APR = 12% How much should you pay each month in order to pay off the loan in 6 months.CALCULATOR4-C

CALCULATOR4-C

The Loan Payment Formula (pg 252) can be used for student loans fixed rate mortgages credit card debt auto loansMore Practice . . .4-C

A student loan of $25,000 at a fixed APR of 10% for 20 yearsa) 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.= $241.26Total Payment: $241.26 12 20 = $57,902.40Principal Payment: $25,000Interest Payment: $57,902.40 $25,000 = $32,902.40CALCULATOR4-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. = $768.914-C

Month Prior PrincipalTotal PaymentInterest 0.7083%Payment toward PrincipalNew Principal1$100,000$768.91$708.33$60.58$99,939.402$99,939.40$768.91$707.90$61.01$99,878.393$99,878.39$768.91$707.47$61.44$99,816.95

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. = $229.20Total Payment: $229.20 12 = $2750.40Principal Paid: $2500Interest Paid: $2750.40 $2500 = $250.404-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?4-C

You need to borrow $10,000 to buy a car and you determine that you canafford monthly payments of $220. The bank offers three choices: a 3 year loan at 7%, = $308.77 $308.77 12 3 = $11,115.794-C

You need to borrow $10,000 to buy a car and you determine that you canafford monthly payments of $220. The bank offers three choices: a 4 year loan at 7.5% or = $241.79 $241.79 12 4 = $11,605.904-C

You need to borrow $10,000 to buy a car and you determine that you canafford monthly payments of $220. The bank offers three choices: a 5 year loan at 8%. = $202.76 $202.76 12 5 = $12,165.604-C

You need to borrow $10,000 to buy a car and you determine that you canafford 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? $308.77 $241.79 $202.76 $308.77 12 3 = $11,115.79 $241.79 12 4 = $11,605.90 $202.76 12 5 = $12,165.604-C

Home Mortgages may be more complicated: interest rate (lower) down payment closing costsdirect fees points (each point is 1% of the loan amount)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.4-C

Choice MonthlyPaymentClosingCost(direct)Closing Cost(points)TotalClosingCostsTotalCosts1$545.742$518.88

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.4-C

Choice MonthlyPaymentClosingCost(direct)Closing Cost(points)TotalClosingCostsTotalCosts1$545.742$518.88

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.4-C

Choice MonthlyPaymentClosingCost(direct)Closing Cost(points)TotalClosingCostsTotalCosts1$545.74$1200$8002$518.88$1200$2400

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.4-C

Choice MonthlyPaymentClosingCost(direct)Closing Cost(points)TotalClosingCostsTotalCosts1$545.74$1200$800$2000196,466 + 2000= $198,4662$518.88$1200$2400$3600186,797 + 3600=$190,397

Homework:Pages 265-267#16, 28, 30, 40, 44, 464-C