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CM30S - 1.4

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  • 1. Consumer Math 30S Unit 1 – Income & Debt Loans
  • 2. Loans Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 3. Loans There are many different types of loans; car loans, personal loans, mortgages to name a few. Loans allow a consumer to borrow money from a financial institution with the understanding that the money will have to be paid back over time with interest. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 4.
    • Terms:
      • Principal : the amount of money borrowed
      • Term : the amount of time during which the conditions of the loan are in effect
      • Amortization Period : the length of time required to pay the loan in full
      • Finance Charges : the interest charged by the lender
      • APR : the annual percent rate interest charge by the lender
    Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 5. Loan Terminology Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 6. Loans
    • The cost of borrowing (finance charges) from a financial institution depends on many factors:
      • the interest rate
      • the term
      • the conditions (the way the loan is to be repaid)
    Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 7. Loans
    • The interest rate charged also depends on many factors:
      • the amount of money you borrow (generally, the greater the amount of money borrowed, the lower the interest rate)
      • the borrower’s past financial record, present financial situation, and the amount of security they can offer
    Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 8. Loans A financial institution usually requires that the product purchased by the loan be used as collateral or security. In the event that the loan is not repaid, the lending institution can seize the product and resell it to recoup the borrowed money. Shopping for a loan is no different from shopping for other products. A consumer should approach more than one lending institution. One institution may offer a better rate and/or better terms than the other. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 9. Calculating Loan Payments In order to calculate your monthly payment, a loan payment calculator or set of tables is used. Your text, on page 59 includes such a table (amortization table). Knowing the rate and the term, you can calculate how much has to be repaid each month per $1000 borrowed. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 10. Jesse requires a personal loan of $10 000 for home renovations. He takes a three year loan at a fixed rate of 10.25%. How much must Jesse pay each month? How much will he pay for the loan? How much interest will Jesse have paid at the end of three years? Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 11. Amy, from Hamiota, want a new computer which costs $2400 plus taxes. She decides to take a personal loan for a term of 2 years at a fixed rate of 11.75%. How much must Amy pay each month? How much will she pay for the loan? How much interest will Amy have paid at the end of three years? Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 12. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.
  • 13. Textbook Assignment: Page 62 - 63 Questions 1 - 5 Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.