Section 10.4, Installment Buying

In an installment loan, you make regular payments until the principal plus interest is repaid.
There are two types
- Car loans are an example of a fixed installment loan
  - You borrow a fixed principal
  - You have a fixed interest rate
  - You make a predetermined number of payments.
- Credit cards are an example of an open-ended or variable installment loan
  - The principal is constantly changing
  - The interest rate can change
  - You must pay a minimum amount of the principal plus all interest teach month.
In a loan, the finance charge is the total amount the borrower must pay for suing the money
- This includes the interest
- Application fees
- Other fees
The total installment price is the sum of the finance charge, the amount borrowed and any down payment.
- This could also be the sum of all payments along with the down payment.
In general we will use a table to do computations related to this type of loan

I will give you this table on the test.

The table represents Finance Charge per $100 financed for different interest rates for different number of payments.

If I financed $100 for 6 monthly payments at 4.0% interest what would my finance charge be? $1.17

If I financed $500 for 12 monthly payments at 6.0% interest, what would my finance charges

First find the finance charge per $100 : 3.28
Second Find the number of $100s : 500/100 = 5
Multiply the finance charge per $100 by the number of $100s
```
3.28 × 5 = 16.4
       
```

To find a monthly payment

Continuing with the example above

11 or 12 page 602

Sometimes they ask us to work these backwards

Look at problem 13 on page 602

We can compute the amount financed

Cost: $7,500
Percent Down: 20%
Down Payment:  $7,500 × .2 = $1,500
Amount Financed : $7,500 0 $1,500 = $6,000

First we can find the finance charge:

Total Payments = $189.40 x 36 = $6,818.40

Finance Charge = Total Payments - Amount Financed
               = $6,818.40 - $6,000
	       = $818.40

We can now find the finance charge per $100

Find the number of $100 financed
    $6,000/$100 = 60
Divide the total finance charge by this
     $818.40/60 = $13.64

Do 14 or 15 page 602

There is a formula to compute the entries in the table, but it is quite complex:

Most loans allow you to pay the loan off early

We calculate the payoff for a loan by

Look at problem number 18