11.4 A Fixed Installment Loans

• A fixed installment loan is a loan where you pay a portion of the principal and interest for a fixed number of payments.
• These are loans like car loans, Signature loans, and student loans.
• They have a fixed interest rate, r , a fixed number of payments per year (usually 12), and a fixed number of years.
• In these problems, we consider the interest to be a finance charge.
• The total installment price is the sum of all payments plus the down payment.
• Two methods to compute payments:
• Table method
  • Compute the number of $100 financed
  • Look up the finance charge per $100 on table 11.2 page 632
  • Compute total amount due
  • Compute monthly payment
• Formula method

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

• If you pay off a loan early, receive credit for unearned interest.
• u = npv/(100+v)
  • n - remaining months
  • P the monthly payment
  • v - lookup r and n on the chart on 632.
• Example Problems: P 641, 7, 11, 13, 17