A personal loan is an agreement between a borrower and lender, usually a bank, where the lender provides a sum of money that the borrower agrees to repay in installments over time with interest. To qualify, a borrower must be an adult and have a stable income source. Key terms include the principal (amount borrowed), cost of borrowing (interest paid), amortization (total repayment period), and term (length of the loan agreement). A payment calculator is provided to determine monthly payments for different loan amounts, interest rates, and terms. Examples are given to demonstrate calculating monthly payments and total interest paid for personal loans over different terms.

1. Page 56 Question #1
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2. Personal Loans
An agreement between you and a lender (usually a bank) that
allows you to borrow a specific amount of money. You agree to pay the
money back in installments over a period of time. You pay interest to
borrow the money.
To qualify for a loan you must be an adult (18 years old in
Manitoba) and you must have some way of repaying the loan (usually a
job).
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3. Vocabulary
Principal ­ Original amount that you borrow.
Cost of Borrowing ­ the interest you pay to use someone else's money.
Amortization ­ the total length of time it will take to pay off your loan. (Usually
1­25 years) (How long you take to pay back all of the money.)
Term ­ the length of time a loan contract is valid (How long to pay back a loan
contract)
For loans that can be paid off in 3­5 years the term is the same
length of time as the amortization ( term = amortization)
For loans that take longer than this to pay off, the amortization is
longer than then term of the loan. The bank expects that at the end
of the term you will take out a new loan with a new term to pay off
the rest of what you owe. A big loan like a house loan can take 5­
10 terms over the 25 year amortization to pay the whole amount off.
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4. Personal Loan Payment Calculator
Monthly Payment per $1000
Interest Rate Term in Years
% 1 2 3 4 5
5.00 85.67 43.91 30.02 23.10 18.96
5.25 85.78 44.02 30.13 23.21 19.07
5.50 85.89 44.13 30.24 23.32 19.18
5.75 86.00 44.24 30.35 23.43 19.29
6.00 86.07 44.33 30.43 23.49 19.34
6.25 86.18 44.44 30.54 23.61 19.46
6.50 86.30 44.56 30.66 23.72 19.57
a) What is the monthly payment for $1000.00 at 5.25% for 4 years?
b) What is the monthly payment for $2000.00 at 5.25% for 4 years?
c) What is the monthly payment for $2000.00 at 6.00% for 2 years?
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5. Example 1
Bea requires a personal loan of $10 000.00 for home renovations. Her financial
institution offers her a 3 year loan at a fixed interest rate of 61/4%.
a) How much must Bea pay her financial institution each month?
b) How much interest has she paid by the end of the term?
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6. Example 2
What if Bea now chooses a 5 year term at a fixed interest rate of 61/4%.
a) How much must Bea pay her financial institution each month?
b) How much interest does has she paid by the end of the term?
c) What is the difference in interest?
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7. Assignment
Read page 57­62 "Exploration 7 Personal Loans"
Do que 1,3,5
Make notes if necessary
Note: Use GST = 7%
Provincial Sales Taxes
BC ­ 7%
Alberta ­ 0%
Sask. ­ 6%
MB ­ 7%
ON ­ 8%
QC ­ 7.5%
NS ­ HST taxes of 15%
YT ­ 0%
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