Fixed Installment Loans

• A Fixed Installment Loan is a loan where both the principal and interest are paid off over a fixed number of payments.
• The amount of the payment does not change, and is known at the time the loan is made.
• A down payment is normally required for such a loan. To compute this:
  • To find the down payment: multiply the principal amount by the percent down
  • To find the amount financed: subtract the down payment from the principal amount
• The interest in a fixed installment loan is called the finance charge
• We will use table 11.2, page 680 to compute the finance charge.
  • I will give you this table on tests.
  • We need the interest rate and the number of payments.
  • Look up the finance charge per $100
• If I want to borrow money at 5% interest, and pay this off in 24 monthly payments, what is the finance charge per $100.
• To compute the finance charge
  • Divide the amount financed by 100 (to find the # of $100 borrowed)
  • Multiply this by the finance charge per $100
• To compute the monthly payment
  • Add the finance charge to the amount financed
  • Divide this by the number of monthly payments.
• Do problem #9, page 688
• Sometimes we know the monthly payments and want to find the interest rate. To do this
  • Compute the total amount (finance charge + amount financed), monthly payment × months.
  • Compute the Finance Charge: Total Amount - amount financed
  • Compute the Finance Charge per Hundred: Finance Charge/amount financed * 100
  • Look across the monthly payment row, find nearest column.
• Do problem #14 page 688
• You can pay off a fixed interest loan early and save interest.
• To do this, we use the Actuarial Method for Unearned Interest

  •           n P V
         u = --------
             100 + V
         

  • P is the monthly payment
  • n is the number of remaining payments
  • V is the value from table 11.2 using n and r
  • The total to pay off the loan is P + nP - u
  • Or This payment plus the remaining payments minus the unearned interest.
• Do problem #18, page 689