1. SECTION
8-3
Simple Interest
Installment Loans pp

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

3. 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.

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

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

6. Formula 3
Finance Charge = Total Amount Repaid – Amount Financed

7. 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?

8. Example 1
Carla Hunt obtained an installment loan of $1, 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?

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

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

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

12. 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, The store financing requires a 10 percent down payment and 12 monthly payments.
What is the finance charge?

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

14. 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, ÷ $ × $8.88 = $ or $111.89

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

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

17. 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.

18. 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?

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

20. END OF SECTION
8-3
Simple Interest
Installment Loans