Loans Step One Look at the loan application from SJB Federal Credit Union –LINKLINK FICO Fair Isaac and Company ScoreFair Isaac and Company –300 to 900.

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Presentation transcript:

Loans

Step One Look at the loan application from SJB Federal Credit Union –LINKLINK FICO Fair Isaac and Company ScoreFair Isaac and Company –300 to % of the score is based on your payment history 30% of the score is based on outstanding debt 15% of the score is based on the length of time you've had credit 10% of the score is based on the number of inquiries on your report 10% of the score is based on the types of credit you currently have

Simple Interest Interest paid only on amount of the loan Formula Total owed = P(1+ni) P = Principal (the size of the loan) n = number of years i = interest rate

Simple Interest Total owed = P(1+ni) P = Principal (the size of the loan) $6000 n = number of years 7 years i = interest rate 4% 6000 x (1 + 7 x.04) 6000 x ( ) 6000 x

Compound Interest Interest paid on the amount of the loan and any unpaid interest. Formula Total = P(1+[i/q])nq P = Principal (the size of the loan) i = interest rate n = the number of years q = the number of times per year that the interest is compounded

Compound Interest Total = P(1+[i/q])nq P = Principal (the size of the loan) $6,000 i = interest rate 4% n = the number of years 7 q = the number of times per year that 12 Total = P(1+[i/q])nq ($6000)(1+[0.04/12])(7)(12) ($6000)( )84 $

Amortization Definition: The gradual elimination of a liability (a loan) through installed regular payments. Such payments must be sufficient to cover both principal and interest. Link