Math 1220 Section 12.2 Notes

Report
Chapter 12
Business and
Consumer Loans
Section 2
Installment Loans
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1
Define Installment Loan
Installment loan – a loan that is amortized
Amortized – a loan is amortized if both the
principal and interest are paid off by a sequence
of equal periodic payments
Used for cars, boats, home improvements, loan
consolidation
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2
Truth in Lending Act
Also referred to as Regulation Z
Requires lenders to disclose their finance charge
and annual percentage rate (APR) on
installment loans
Nominal rate, or stated rate – can differ from
the APR, which is based on actual amount
received by borrower
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3
Total Installment Cost and Finance
Charge
Total installment cost – includes the down
payment and all subsequent payments
Finance charge – includes interest and any fees
charged by the lender
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Find Total Installment Cost, Finance
Charge, and Amount Financed
Total
Down + Payment Number of
installment =
×
payment amounts payments
cost
Total
Finance
Cash
installment –
=
charge
price
cost
Amount
=
financed
Cash
price
–
Down
payment
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Page 476
Quick Check 1
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6
Stafford Loan
Available to students in college
Subsidized – government pays the interest while
student is at least half-time
Unsubsidized – student pays the interest
Repayment begins 6 months after student is no
longer at least half-time
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7
Use the Formula for Approximate APR
The approximate annual percentage rate (APR)
for a loan paid off in monthly payments can be
found with the following formula.
Approximate
24 × Finance charge
=
APR
Amount
Total number
(1 +
)
×
financed
of payments
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8
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Exc 8
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9
Use the Table to Find APR
Step 1 Multiply the finance charge by $100, and
divide by the amount financed
Finance charge  $100
Amount financed
The result is the finance charge per
$100 of the amount financed.
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10
Use the Table to Find APR
Step 2 Read down the left column of the annual
percentage rate table to the proper
number of payments. Go across to the
number closest to the number found in
Step 1. Read the number at the top of that
column to find the annual percentage rate.
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Exc 14
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