Installment Buying
- The most common type of loan you will have is an installment loan
- You borrow some money and make regular (mostly monthly) payments.
- Each payment pays off all interest and some of the principal.
- For a fixed installment loan, the principal, and interest rate is fixed.
- For a open-ended installment loan, things are much more flexiable.
- We will look at each.
- Two additional terms
- The finance charge is the total of all interest, and other charges, the borrower must pay.
- The total installment price is the sum of the principal, finance charges and down payments.
- For this computation we have two choices
- A table
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- A somewhat nasty formula
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- Try 7 and 9 page 641
- Try 11 page 641
- Sometimes we need to work these backwords
- Try 13 page 641
- One last bit on fixed: Unearned Interest
- If you pay a loan off early, you don't owe the bank the entire finance charge.
- u = npv/(100+v)
- n - remaining payments
- p = monthly payment
- v - value from APR table using r and n
- Do problem 19 page 642.
- Do other problems up to 21.