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4-2 LOANS OBJECTIVES Read monthly payments from a table. Compute monthly payments using a formula. Compute finance charges on loans. Slide 1 Financial Algebra © Cengage/South-Western Key Terms Slide 2 promissory note principal annual percentage rate cosigner life insurance prepayment privilege prepayment penalty wage assignment wage garnishment balloon payment lending institution collateral Financial Algebra © Cengage Learning/South-Western What information do you need to know before taking out a loan? Why is it important to read the fine print in a promissory note? How does it affect a bank when a loan is paid off early? What type of lending institutions have you heard of? Are any of these available locally? Slide 3 Financial Algebra © Cengage Learning/South-Western Table of monthly payments per $1,000 of principal Slide 4 Financial Algebra © Cengage Learning/South-Western Example 1 What is the monthly payment for a $4,000 two-year loan with an APR of 8.50%? Slide 5 Financial Algebra © Cengage Learning/South-Western CHECK YOUR UNDERSTANDING Juan is borrowing $41,000 for 5 years at an APR of 6.5%. What is the monthly payment? Slide 6 Financial Algebra © Cengage Learning/South-Western Example 2 What is the total amount of the monthly payments for a $4,000, two-year loan with an APR of 8.50%? Slide 7 Financial Algebra © Cengage Learning/South-Western CHECK YOUR UNDERSTANDING The total of monthly payments for a 5-year loan is $7,171.20. The APR is 7.25%. How much money was originally borrowed? Slide 8 Financial Algebra © Cengage Learning/South-Western EXAMPLE 3 Find the finance charge for a $4,000, two-year loan with an 8.5% APR? Slide 9 Financial Algebra © Cengage Learning/South-Western CHECK YOUR UNDERSTANDING Karl is borrowing x dollars over a three-year period. The monthly payment is y dollars. Express his finance charge algebraically. Slide 10 Financial Algebra © Cengage Learning/South-Western EXAMPLE 4 Mark bought a new car. The total amount he needs to borrow is $28,716. He plans on taking out a 4-year loan at an APR of 5.12%. What is the monthly payment? Slide 11 Financial Algebra © Cengage Learning/South-Western CHECK YOUR UNDERSTANDING Find the monthly payment for a $1,000, one-year loan at an APR of 7.5%. Slide 12 Financial Algebra © Cengage Learning/South-Western