Student Loans Someday you might want to earn a college degree, buy a car, or purchase a home. A loan can help you reach those goals. Why might you consider.

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Presentation transcript:

Student Loans Someday you might want to earn a college degree, buy a car, or purchase a home. A loan can help you reach those goals. Why might you consider obtaining a loan?

Lesson Objective Compute the final payment when paying off an installment loan. Content Vocabulary final payment Payment on a simple interest loan that consists of the previous balance plus the current month’s interest.

The first 3 months of the repayment schedule for Doug and Donna Collins’s loan of $1,800 at 12 percent interest for 6 months is shown in Figure 8.2 below. What is the final payment if they pay the loan off with the fourth payment? Example 1

Figure 8.2

Find the previous balance. $ Example 1 Answer: Step 1

Find the interest for the fourth month. Principal × Rate × Time $ × 12% × 1/12 = $9.137 or $9.14 Example 1 Answer: Step 2

Find the final payment. Previous Balance + Current Month’s Interest $ $9.14 = $ Example 1 Answer: Step 3

How much would the Collins’s in Example 1 save by paying off the loan early? Example 2

Step: Find the interest saved. Total Payback – (Sum of Previous Payments + Final Payment) (6 × $310.50) – [(3 × $310.50) + $922.84] = $1, – [$ $922.84] = $1, – $1, = $8.66 Example 2 Answer

Chanelle Thompson took out a simple interest loan of $2,200 at 15 percent for 6 months. Her monthly payment on the loan is $ After 3 payments the balance is $1, She pays off the loan with the fourth payment. Practice 1

a. What is the interest? b. What is the final payment? c. How much is saved by paying off the loan early? Practice 1 (cont.)

a. Interest: $14.01 b. Final payment: $1, c. Amount saved by paying off the loan early: $13.67 Practice 1 Answer

Alicia Fleming took out a simple interest installment loan of $8,300 at 8 percent for 18 months. The monthly payment is $ After 5 payments, the balance is $6, If she pays off the loan when the next payment is due, what is the final payment? How much is saved by paying off the loan early? Practice 2

Amount due if she pays off the loan with the next payment: $6, Amount saved by paying off the loan early: $ Practice 2 Answer