Installment Loans

For an installment loan, the borrower makes regular payments of principal and interest.
It is treated as a series of simple interest loans, where the borrower pays off the interest due each month, then a portion of the principal.
The finance charge is the total amount of money the borrower must pay for borrowing the money.
The total installment price is the sum of the principal and finance charge.
We will use the table on 632 when computing these loans.
- I will give you a copy of this on the test.
- It lists finance charge per $100 of loan.
- For a set of annual percentage rates and a number of payments.
If I borrow $100 at 4% interest for 6 months, my total finance charge is $1.17
- The total installment price is $100+$1.17 = $101.17
- I must pay $101.17/6 = $16.86 per month for the next six months.
If I borrow $300, for 12 months at 5% interest
- What is the finance charge per $100? $2.73
- how many $100 have I borrowed? ($300/$100) = 3
- What is the total finance charge 3*2.73 = 8.19
- What is the total installment price? 300+8.19 = $308.19
- What is the monthly payment? $308.19/12 = $25.68
Do problems 7, 9, 11, 12 page 641
How does this work?
- P = $1000, r = 4%, t = 6 months,
- finance charge per 100 = 1.17
- Number of $100 is 10
- Total Finance Charge 11.70
- Installment price 1011.70
- Monthly Payment 1011.70/6 = 168.62
```
Month	Prin		Int	To Prin
1	$1,000.00	$3.33	$165.28
2	$834.72		$2.78	$165.83
3	$668.88		$2.23	$166.39
4	$502.50		$1.67	$166.94
5	$335.55		$1.12	$167.50
6	$168.06		$0.56	$168.06
   
```

The book gives another method for computing the monthly payment

         p(r/n)
m = ---------------
      1- (1+r/n)^-nt

Redo 12 with this method.
Your student loans might look like this: (see this link)
- You most likely have two loans, a subsidized loan
  - Maximum amount: $23,000
  - Interest rate: 3.4%
  - Time: 10 years
  - The monthly payment would be $226
  - The finance charge would be $4,163.40
- An unsubsidized loan
  - Amount: 34,500
  - Interest Rate: 6.8%
  - Time: 10 Years.
  - The monthly payment would be: $397.03
  - The finance charge would be: $13,143.26
We can also work these back words
Do problem 13 and 14 page 641
It is possible to pay off a loan early.
Then you don't need to pay unearned interest
u = npv/(100+v)