Paying Off Simple Interest Installment Loans pp SECTION

Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 2 of Section Objective Compute: final payment when paying off a simple interest installment loan

Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 3 of final payment (p. 297) Payment on a simple interest loan that consists of the remaining balance plus the current month’s interest. Key Words to Know

Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 4 of Interest = Principal × Rate × Time Formula 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 5 of Final Payment = Previous Balance + Current Month’s Interest Formula 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 6 of Interest Saved = Total Payback – (Sum of Previous Payments + Final Payment) Formula 3

Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 7 of A Picture Perfect Loan p. 297 Why might a bank not encourage you to pay off a loan early?

Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 8 of The first 3 months of the repayment schedule for Doug and Donna Collins’s loan of $1,800 at 12 percent interest for 6 months is shown in Figure 8.2 below. What is the final payment if they pay the loan off with the fourth payment? Example 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 9 of Figure 8.2

Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 10 of Find the previous balance. $ Example 1 Answer: Step 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 11 of Find the interest for the fourth month. Principal × Rate × Time $ × 12% × 1/12 = $9.137 or $9.14 Example 1 Answer: Step 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 12 of Find the final payment. Previous Balance + Current Month’s Interest $ $9.14 = $ Example 1 Answer: Step 3

Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 13 of How much would the Collins in Example 1 save by paying off the loan early? Example 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 14 of Step: Find the interest saved. Total Payback – (Sum of Previous Payments + Final Payment) (6 × $310.50) – [(3 × $310.50) + $922.84] = $1, – [$ $922.84] = $1, – $1, = $8.66 Example 2 Answer

Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 15 of Chanelle Thompson took out a simple interest loan of $2,200 at 15 percent for 6 months. Her monthly payment on the loan is $ After 3 payments the balance is $1, She pays off the loan with the fourth payment. Practice 1

Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 16 of a. What is the interest? b. What is the final payment? c. How much is saved by paying off the loan early? Practice 1 (cont.)

Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 17 of a. Interest: $14.01 b. Final payment: $1, c. Amount saved by paying off the loan early: $13.67 Practice 1 Answer

Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 18 of Alicia Fleming took out a simple interest installment loan of $8,300 at 8 percent for 18 months. The monthly payment is $ After 5 payments, the balance is $6, If she pays off the loan when the next payment is due, what is the final payment? How much is saved by paying off the loan early? Practice 2

Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 19 of Amount due if she pays off the loan with the next payment: $6, Amount saved by paying off the loan early: $ Practice 2 Answer

Paying Off Simple Interest Installment Loans 8-5 END OF SECTION