2 Loans (4.2) Whenever you borrow money, you must sign an agreement. Promissory NoteStates the conditions of the loanShould read this carefully before signing
3 Loans (4.2) Some Key Terms: Cosigner: Life Insurance:Wage Assignment:Another person who agrees to pay back the loan if the borrower is unable to do so.Sometimes required, in the event the borrower dies before loan is paid offVoluntary deduction from your paycheck to pay off the loan
4 Loans (4.2) Some Key Terms: Wage Garnishment: Balloon Payment: Involuntary form of wage assignmentThe last payments can be higher than the previous. These are called balloon payments.
5 Loans (4.2) Where can you go to take out a loan? Banks Credit Unions Consumer Finance CompaniesLife Insurance CompaniesPawnshops
6 Loans (4.2) Banks Credit Unions Offer good interest rates Must have good credit or have a cosignerCredit UnionsProvided for members onlyMembers usually work in the same office, be in the same profession, live in the same complex, etc.Typically offer the lowest interest rate
7 Loans (4.2) Consumer Finance Companies Life Insurance Companies Offer loans to those with poor creditCharge high interest ratesLife Insurance CompaniesOffer loans to their policyholdersInterest rate is based on the coverage a person hasMinimal risk to life insurance company
8 Loans (4.2) Pawnshops Loan Sharks Short-term loans Leave a personal belonging as collateralMost loans are only 30-, 60-, or 90-daysLoan SharksIllegalExtremely high interestNo credit check
9 Loans (4.2) Figuring out your monthly payments Chart on page 183 of the bookThis is for $1,000 principal
10 Loans (4.2)What is the monthly payment for a $4,000 two-year loan with an APR of 8.5%?From chart: 45.46For $4,000, multiply by 4= $ monthly payment
11 Loans (4.2)Juan is borrowing $41,000 for 5 years at an APR OF 6.5%. What is the monthly payment?From chart: 19.57For $41,000, multiply this by 41= $802.37
12 Loans (4.2)How much would you have to pay back, in total, if you borrowed $5,000 for 4 years at an interest rate of 8.25%?From chart: 24.53For $5,000, multiply this by 5Monthly Payment = $122.65How much would this cost for 4 years?($102)(48) =$5,887.20
16 Loans (4.2)Last week, we started calculating the monthly payments on loans using the chart on page 183.Find the rate & time period of the loanMultiply the number in the intersecting box by the principal of the loan
17 Loans (4.2)Find the monthly payment for a $10,000 loan at 10.5% for 4 years.From chart: 26.50For $10,000, multiply this by 10= $265.00
18 Loans (4.2)Last week, we began working on numbers 2-8 on page 185
20 Loans (4.2) Arrange the following in descending order: 9 ½ %, 9%, %, 9.45%, %
21 Loans (4.2)3) How many more monthly payments are made for a five-year loan than for a two-year loan?
22 Loans (4.2) How many monthly payments must be made for a 2 ½ year loan?
23 Loans (4.2)Bart needs to borrow $7,000 from a local bank. He compares monthly payments for a 9.75% loan for three different periods of time.What is the monthly payment for a one-year loan?What is the monthly payment for a three-year loan?What is the monthly payment for a five-year loan?
24 Loans (4.2)6) Rachel has a $10,000, three-year loan with an APR of 7.25%.What is the monthly payment?What is the total amount of the monthly payments?What is the finance charge?
25 Loans (4.2)Melissa wants to check the accuracy of the finance charge on her promissory note. She has a $6,000, four-year loan at an APR of 10%.What is the monthly payment?What is the total amount of the monthly payments?What is the finance charge?
26 Loans (4.2)8) The policy of the Broadway Pawnshop is to lend up to 35% of the value of a borrower’s collateral. John wants to use a $3,000 ring and a $1,200 necklace as collateral for a loan. What sit eh maximum amount that he could borrow from Broadway?
27 Loans (4.2)You are buying a new car and need a loan of $28,716. You plan on taking out a 4-year loan at an APR of 5.12%. What is your monthly payment?When the number of years or APR are not on the chart, we must use the monthly payment formula.
28 Loans (4.2)Monthly Payment Formula:M = Monthly PaymentP = PrincipalM= P 𝑟 𝑟 𝑡 𝑟 𝑡 −1r = Interest Ratet = Number of Years
29 Loans (4.2)You are buying a new car and need a loan of $28,716. You plan on taking out a 4-year loan at an APR of 5.12%. What is your monthly payment?M= 28, ∙ ∙4 −1
30 Loans (4.2)You are buying a new car and need a loan of $28,716. You plan on taking out a 4-year loan at an APR of 5.12%. What is your monthly payment?M==$662.87
31 Loans (4.2)Juliana is taking out an $8,700, 3 ½ year loan with an APR of 9.31%. What will the monthly payment be for this loan?M= 8, ∙ ∙ 3.5 −1
32 Loans (4.2)Juliana is taking out an $8,700, 3 ½ year loan with an APR of 9.31%. What will the monthly payment be for this loan?M==$243.52
33 Loans (4.2)On pages 185 & 186, continue working on numbers 9 – 16 (skip 15)
34 Loans (4.2)The Fortunato family is buying a $430,000 home. They are taking out a 30-year mortgage at a rate of 8%.
35 Loans (4.2)The Fortunato family is buying a $430,000 home. They are taking out a 30-year mortgage at a rate of 8%.
36 Loans (4.2)The Fortunato family is buying a $90,000 home. They are taking out a 30-year mortgage at a rate of 4.5%.