INSTALLMENT BUYING WALTER S. SORILLO MAED – MATHEMATICS REPORTER.

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Presentation transcript:

INSTALLMENT BUYING WALTER S. SORILLO MAED – MATHEMATICS REPORTER

What is Installments-Buying? Buying on an installment plan is usually referred to as deferred-payment or time-payment plan. Installment-buying, thus refers to the type of purchase which requires the buyer to pay a down payment upon purchase, and to pay the remaining balance in several periodic payments within a specified time span. The total sum paid through installment is usually higher than the regular cash price.

Cost of Installment Buying Deferred payment price (DPP) – the total of all monthly payments plus the down payment. DPP = Total of all + Down monthly payments payment Amount financed (AF) – the amount actually borrowed. AF = Cash price -- Down payment Finance charge (FC) – the interest charge. FC = Total of all -- Amount monthly payments financed Installment loan – A loan paid off in a series of equal periodic payments. Payments include interest and principal.

Cost of Installment Buying Mary Wilson would like to buy a boat that cost $9,345. If she puts down $300 she can finance the balance for 60 months at 10.5% (monthly payment = $194.38). Calculate the amount financed, finance charge, and deferred payment price. Amount financed = Cash price -- Down payment $9,045 = $9,345 -- $300 Finance charge = Total of all -- Amount monthly payments financed $2,617.80 = $11,662.80 -- $9,045 ($194.38 x 60) Deferred payment Price = Total of all + Down monthly payments payments $11,962.80 = $11,662.80 + $300

Annual Percentage Rate (APR) Calculating APR rate by table Finance charge x $100 = Table 14.1 Amount financed lookup number Truth in Lending Act APR must be accurate to the nearest 1/4 of 1% $2,617.80 x 100 = $28.94 $9,045 Between 10.25% -- 10.50%

Annual Percentage Rate Table per $100 (Table 14.1)

Calculating the Monthly Payment by Formula The pickup truck advertisement below shows a $194.38 monthly payment. We can check this by formula and by table lookup. Finance charge + Amount financed Number of payments of loan $2,617.80 + $9,045 60 = $194.38

Calculating the Monthly Payment by Table Step 1. Divide the loan amount by $1,000. $9,045 = 9.045 $1,000 Step 2. Look up the rate (10.5%) and the number of months (60). At the intersection is the table factor showing the monthly payment per $1,000 ($21.49). Step 3. Multiply the quotient in Step 1 by the factor in Step 2. 9.045 x $21.49 = $194.38

Loan Amortization Table (Table 14 Loan Amortization Table (Table 14.2) (Monthly payment per $1,000 to pay principal and interest on installment loan) (Partial)

References: Internet: Alteres, Priscilla S. et al. Mathematics of Investment. Manila: Rex Book Store.2004. Alteres, Priscilla S. et al. Business Mathematics. Manila: Rex Book Store.2003. Internet: