SECTION 8-3 Simple Interest Installment Loans pp. 290-293

Section Objective Figure out: monthly payment on an installment loan total amount repaid on an installment loan finance charge on an installment loan

Key Words to Know simple interest installment loan (p. 290) A loan repaid with equal monthly payments. annual percentage rate (p. 290) An index showing the cost of borrowing money on a yearly basis, expressed as a percent.

Formula 1 Monthly Payment = Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan

Formula 2 Total Amount Repaid = Number of Payments × Monthly Payments

Formula 3 Finance Charge = Total Amount Repaid – Amount Financed

A Picture Perfect Loan p. 290 What do you think a bank looks for in a client who wants to take out a personal loan?

Example 1 Carla Hunt obtained an installment loan of $1,800.00 to purchase some new furniture. The annual percentage rate is 8 percent. She must repay the loan in 18 months. What is the finance charge?

Example 1 Answer: Step 1 Find the monthly payment. Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan $1,800.00 ÷ $100.00 × $5.91 = $106.38

Example 1 Answer: Step 2 Find the total amount repaid. Number of Payments × Monthly Payment 18 × $106.38 = $1,914.84

Example 1 Answer: Step 3 Find the finance charge. Total Amount Repaid – Amount Financed $1,914.84 – $1,800.00 = $114.84

Example 2 Tulio and Lupe Fernandez purchase a refrigerator with an installment loan that has an APR of 12 percent. The refrigerator sells for $1,399.99. The store financing requires a 10 percent down payment and 12 monthly payments. What is the finance charge?

Example 2 Answer: Step 1 Find the amount financed. Selling Price – Down Payment $1,399.99 – (0.10 × $1,399.99) $1,399.99 – $140.00 = $1,259.99

Example 2 Answer: Step 2 Find the monthly payment. (Refer to the Monthly Payment on a Simple Interest Installment Loan of $100 on page 799 in your textbook). Amount of Loan ÷ $100 × Monthly Payment for a $100 Loan $1,259.99 ÷ $100.00 × $8.88 = $111.887 or $111.89

Example 2 Answer: Step 3 Find the total amount repaid. Number of Payments × Monthly Payment 12 × $111.89 = $1,342.68

Example 2 Answer: Step 4 Find the finance charge. Total Amount Repaid – Amount Financed $1,342.68 – $1,259.99 = $82.69

Practice 1 A new heating and air conditioner will cost the Sangjun family $4,800. They make a down payment of 20 percent and finance the remaining amount. They obtain an installment loan for 36 months at an APR of 14 percent.

Practice 1 (cont.) a. What is the down payment? b. What is the amount of the loan? c. What are the monthly payments? d. What is the finance charge?

Practice 1 Answer a. Down payment: $960 b. Amount of the loan: $3,840 c. Monthly payments: $131.33 d. Finance charge: $887.88

END OF SECTION 8-3 Simple Interest Installment Loans