Thinking Mathematically

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Presentation transcript:

Thinking Mathematically Consumer Mathematics and Financial Management 8.5 Installment Buying

The Vocabulary of Fixed Installment Loans Installment loan – a loan that you pay off with weekly or monthly payments. Fixed installment loan – fixed periodic payment.

The Vocabulary of Fixed Installment Loans The amount financed is what the consumer borrows: Amount financed = Cash price - Down payment

The Vocabulary of Fixed Installment Loans The total installment price is the sum of all monthly payments plus the down payment: Total installment price = Total of monthly payments + Down payment

The Vocabulary of Fixed Installment Loans The finance charge is the interest on the installment loan: Finance charge = Total installment price - cash price

Steps in Using an APR Table Compute the finance charge per $100 financed: [Finance charge / (Amount financed/ $100) Look in the row corresponding to the number of payments to be made, and find the entry closest to the value in step 1. Find the APR a the top of the column in which the entry from step 2 is found. (This is the APR rounded to the nearest ½%)

Example – Using an APR table Exercise Set 8.5 #5, 11 A computer is paid for with 12 monthly installments. The finance charge per $100 is $6.90. What is the APR for this loan? Furniture is purchased for a cash price of $17,500. The purchase is financed by paying $500 down, and $360.55 per month for 60 months. Determine the amount financed. Determine the total installment price. Determine the finance charge. What is the APR for this loan?

Thinking Mathematically Consumer Mathematics and Financial Management 8.5 Installment Buying