Unit 8: Loans Name:

Learning Targets:

Define credit
List the advantages and disadvantages to using credit
Differentiate between revolving credit and installment loans
Explain how to establish a good credit rating
List factors that determine your credit score
Calculate the amount financed when a down payment is made
Calculate the monthly payment of an installment loan using tables
Calculate the monthly interest, amount to principal, and new balance after a monthly payment has been made
Calculate the final payment of an installment loan

Notes:

Day 1 – Review Compound Interest Formula and CD’s Date_____________

Learning Target: * Define credit
* List the advantages and disadvantages to using credit
* Differentiate between revolving credit and installment loans
* Explain how to establish a good credit rating
* List factors that determine your credit score

I. Loan
A. Definition
___________________________________________________________________________________

1. Single Payment Loan:______________________________________________________________

2. Installment Loans:_________________________________________________________________

Examples: ________________________________
________________________________
________________________________

B. Other “Loan” terms:

1. Promissory Note: _________________________________________________________________

2. Down Payment: __________________________________________________________________

3. Amount Financed: ________________________________________________________________

4. Principal: _______________________________________________________________________

5. Interest: ________________________________________________________________________
 6. Finance Charge: _________________________________________________________________

7. Term: __________________________________________________________________________

8. Cosigner: _______________________________________________________________________

9. Annual Percentage Rate (APR): _____________________________________________________

II. Truth In Lending Act

A. ________________________________________________________________________________
________________________________________________________________________________

B. Required information to be provided on a loan (according to the Truth In Lending Act)

1. ______________________________________________________________
2. ______________________________________________________________
3. ______________________________________________________________
4. ______________________________________________________________
5. ______________________________________________________________
6. ______________________________________________________________
7. ______________________________________________________________

II. Three financial indicators to evaluate your ability to get a loan:

A. ___________________________________________________________________________________

B. ___________________________________________________________________________________

C. ___________________________________________________________________________________

III. Credit Rating

A. What is it used for? ___________________________________________________________________

B. How do you establish a good credit rating?

1. ________________________________________________________________________________

2. ________________________________________________________________________________

3. ________________________________________________________________________________

4. ________________________________________________________________________________

5. ________________________________________________________________________________

6. ________________________________________________________________________________
V. Factors that determine your Credit Score (FICO Score):
A. ___________________________________________________________________________________

B. ___________________________________________________________________________________

C. ___________________________________________________________________________________

D. ___________________________________________________________________________________

E. ___________________________________________________________________________________

VI. Consumer Reporting Agencies:

A. ___________________________________________________________________________________

B. ___________________________________________________________________________________

C. ___________________________________________________________________________________

Day 2 – Installment Loans – Amount Financed Date __________________

Learning Target: * Calculate the amount financed when a down payment is made
* Calculate the monthly payment of an installment loan using tables

Installment Loans
Definition :

INSTALLMENT LOAN FORMULAS:

1.

2.

3.

4.

5.

6.
Example: Suppose your family is purchasing a new car for $24,500.
They make a 10% down payment and borrow the rest at 6% interest for 5 years.

Down Payment:

Amount Financed:

Monthly Payment:

Total Repaid:

Finance Charge:

Total Paid:

Day 3 – Monthly Payment Allocation Date_______________

Learning Target: Calculate the monthly interest, amount to principal, and new balance after a monthly
payment has been made.

Monthly Payments

Loans with Monthly Payments:_____________________

Formula for Monthly Payment:

Monthly Payment is made up of 2 parts:

1)

2)

INSTALLMENT LOAN FORMULAS:

7.

8.

9.
Example: Buy a boat for $22,500. Must make a 10% down payment.
Take out a 5-year loan at 7.5% interest rate.

Down Payment: Amount Financed:

Monthly Payment:

Amount to Interest:

Amount to Principal:

New Balance:

Day 4 – Loan Repayment Schedule Date __________________

Learning Target: Calculate the monthly interest, amount to principal, and new balance after a monthly
payment has been made.

Warm-Up Example: Bought a used car for $15,000. Put down 20%. Loan APR 6.5% for 3 years.
What will you pay in finance charges?

Loan Repayment Example 1:

Complete the first six months of the repayment schedule below for a loan of $5000 at 7% for 18 months.

Payment Monthly Amount for Amount for New

Number Payment Interest Principal Principal

1 293.40 29.17 264.23 4735.77

2 293.40 27.63 265.77 4470.00

3 293.40 26.08 267.32 4202.68

4 293.40

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 Loan Repayment Example 2:
Complete the first three months of the repayment schedule below for a loan of $24,000 at 9.5% for 5 years.

Payment Monthly Amount for Amount for New

Number Payment Interest Principal Principal

Day 5 – Final Loan Payment Date __________________

Learning Target: Calculate the final payment of an installment loan

INSTALLMENT LOAN FORMULAS:

10.

Example from yesterday's homework

1. Complete the repayment schedule below for a loan of $2400 at 12% for 12 months.

REPAYMENT SCHEDULE FOR A $2400 LOAN

AT 12% FOR 12 MONTHS
Payment Monthly Amount for Amount for New
Number Payment Interest Principal Principal

1 $213.12 $24.00 $189.12 $2210.88

2 $213.12 22.11 191.01 2019.87

10 $213.12

11 $213.12

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