1. Truth in Lending Ch 14.3

2. Truth in Lending Act - 1968  This law was to help consumers protect their credit  It did 2 main things:  Made all banks use APR so consumers would be able to compare interests rates and know how much they were being charged each year  Let borrowers pay off closed-end loans early and not pay as much in interest

3. Find the monthly payment Purchase PriceDown PaymentFinance Charge# of Monthly Payments $5000$750$99036 $675$0$5518

4. APR – Annual Percentage Rate  This tells you how much you are charged for interest in a year.  The problem became when different banks described interest in different ways  How would you know which is better: 1.5% per month or 9% per year?  APR has to be disclosed by any institution so you can compare with other places

5. Finding APR  The formula is too complicated, so there is a table that we will use on page 883 in your book  APR = true annual interest  n = total number of monthly payments  h = finance charge per $100 of amount financed

6. Find the true annual interest rate Amount FinancedFinance Charge# of Monthly Payments $1350$11018 $2800$39530

7. Find the APR Purchase PriceDown PaymentAdd-On Interest Rate # of Monthly Payments $5230$3256.5%30 $2000$06%18

8. Homework P. 887 #1 - 12 APR 8%8.5%9%9.5%10%10.5%11%11.5%12%12.5%13%13.5% n h – finance charge per $100 62.352.492.642.792.943.083.233.383.533.683.833.97 124.394.664.945.225.505.786.066.346.626.907.187.46 186.456.867.287.698.108.528.939.359.7710.1910.6111.03 248.559.099.6410.1910.7511.3011.8612.4212.9813.5414.1014.66 3010.6611.3512.0412.7413.4314.1314.8315.5416.2416.9517.6618.38 3612.8113.6414.4815.3216.1617.0117.8618.7119.5720.4321.3022.17 4817.1818.3119.4520.5921.7422.9024.0625.2326.4027.5828.7729.97 6021.6623.1024.5526.0127.4828.9630.4531.9633.4734.9936.5238.06

9. Unearned Interest  When you pay a loan off early, you don’t pay all the interest – this is the unearned interest  Most lenders use the actuarial method  You do not get all of the unearned interest back because lenders charge an early payment penalty  This must be disclosed at the time of signing for the loan

10. Unearned Interest – Actuarial Method  For a closed-end loan that is paid off early, let R = regular monthly payments k = remaining number of scheduled payments (after the current payment) h = finance charge per $100 corresponding to the APR and the k remaining payments Unearned interest, u = kR(h/(100+h))

11. Payoff Amount  After you figure out the unearned interest, you can find the payoff amount – assuming no penalty charge: Payoff Amount = (k + 1)R – u

12. a) Find the unearned interest b) Find the payoff amount Regular Monthly Payments APRRemaining # of Payments $2128.5%18 $130010%48

13. Find the APR You have purchased $7000 of merchandise. You have agreed to a loan for 2 ½ years at 6.75%. Find the finance charge and the APR of the loan.

14. Find the APR After a down payment on your new car, you still owe $7454. You repay the loan in 48 monthly payments of $185 each. Find the finance charge. What is the APR of the loan?

15. Which is the better deal? You have the option of one of two loans for $7,000. You can borrow it from your bank at 7% add-on interest for 4 years or you can make 48 monthly payments of $190.

16. Suppose you get a raise and want to pay off your car loan. It was a 4 year loan and you want to pay it off after 3 years. Your monthly payment is $185 with an APR of 9%. a) Find the unearned interest. b) Find the payoff amount.

17. You want to pay off a loan that is a 3 year loan with an APR of 8.5%. Your monthly payment is $212 and you want to pay it off 6 months early. a) Find the unearned interest. b) Find the payoff amount.

18. Homework  P887 #13 – 20, 27, 29