1. Student Loans Someday you might want to earn a college degree, buy a car, or purchase a home. A loan can help you reach those goals. Why might you consider obtaining a loan?

2. Lesson Objective Compute the final payment when paying off an installment loan. Content Vocabulary final payment Payment on a simple interest loan that consists of the previous balance plus the current month’s interest.

4. 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

5. Figure 8.2

6. Find the previous balance. $913.70 Example 1 Answer: Step 1

7. Find the interest for the fourth month. Principal × Rate × Time $913.70 × 12% × 1/12 = $9.137 or $9.14 Example 1 Answer: Step 2

8. Find the final payment. Previous Balance + Current Month’s Interest $913.70 + $9.14 = $922.84 Example 1 Answer: Step 3

9. How much would the Collins’s in Example 1 save by paying off the loan early? Example 2

10. Step: Find the interest saved. Total Payback – (Sum of Previous Payments + Final Payment) (6 × $310.50) – [(3 × $310.50) + $922.84] = $1,863.00 – [$931.50 + $922.84] = $1,863.00 – $1,854.34 = $8.66 Example 2 Answer

11. Chanelle Thompson took out a simple interest loan of $2,200 at 15 percent for 6 months. Her monthly payment on the loan is $382.80. After 3 payments the balance is $1,120.72. She pays off the loan with the fourth payment. Practice 1

12. 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.)

13. a. Interest: $14.01 b. Final payment: $1,134.73 c. Amount saved by paying off the loan early: $13.67 Practice 1 Answer

14. Alicia Fleming took out a simple interest installment loan of $8,300 at 8 percent for 18 months. The monthly payment is $490.53. After 5 payments, the balance is $6,094.80. 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

15. Amount due if she pays off the loan with the next payment: $6,135.43 Amount saved by paying off the loan early: $241.46 Practice 2 Answer