Installment Buying All for 3 easy payments of…

Installment Buying  Pay for a portion of the purchase now  Remaining balance owing is divided into equal payments.

Installment Buying  Installment Price –Sum of the down payment and all installment payments –This price is usually higher than the cash selling price.  Finance or Carrying Charges –The difference between the installment price and the cash selling price

Installment Buying  Example –A new washing machine has a cash selling price of $ plus taxes. –The store offers an installment plan for $150 down and $90/month for 12 months. –Calculate the cash selling price of the washing machine. –Calculate the installment price of the washing price.

Installment Buying Assignment Module 3 Lesson 2

Deferred Payment Plans No interest, no payments….

Deferred Payment Plans  Most often offered by furniture, electronics and appliance companies  Payment is delayed on actual cost, but other fees must be paid up-front. –Taxes, delivery charges

Deferred Payment Plans  Administration Fees –Amount the company charges for the work involved in administering the deferred payment plan.  Interest –Not charged if the balance is paid in full on or before the due date.

Deferred Payment Plans  Amy wants to purchase a sofa. She can either pay for the sofa up front for $ (plus tax) or she can use the stores payment plan. –At the time of purchase she must pay the taxes, and a delivery charge of $25. –If she selects the payment plan, she has one year interest fee, but must pay a $49.99 administration fee at the time of purchase. –Compare the two purchase prices.

Assignment Module 3 Lesson 3 Quiz on Friday

Credit Cards Plastic Money!

Credit Cards  90% of credit card purchases are impulse purchases!  Only 54% of card owners pay off their balances each month!

Types of Cards  Charge Cards –No pre-set spending limit –Must be paid in full each month American Express  Credit Cards –Pre-set spending limit –Allow you to carry a balance –As long as you pay the minimum monthly payment –VISA, Mastercard

Credit Cards - Interest  Rates vary on different cards –Range from 15% - 25% annually –Interest charged daily Daily rate = annual rate divided by 365  Charged on all balances after due date –Interest is backdated to the date of purchase

Credit Cards - Interest  Interest is charged on cash advances immediately –No grace period, interest accumulates immediately

Credit Cards – Days Late  Be careful calculating the number of days late… –Example A Purchase made on December 3 rd – not paid until January 5 th. –How many days in December didn’t you have it? 2 Days in December = = 29 –How many days in January did you have it? 5 Total = = 34 days

Credit Cards  Example –Monica makes a $400 purchase on her VISA on January 5 th. –She receives her statement on the 20 th, but does not pay it. – Her next statement arrives on February 20 th. –Calculate the interest she is charged if her annual interest rate is 21%.

Assignment Module 3 Lesson 4

Personal Loans

 Allow you to borrow a specified sum of money and repay it over time –Usually 1 – 5 years  To qualify you must –Be 18 years of age –Have the 3 C’s required Character, Capacity, Capital

Personal Loan Terminology  Amortization Period –The amount of time it will take to repay the loan  Term –The period of time where the loan conditions stay the same Not necessarily the same as amortization  Cost of Borrowing –The amount of total interest paid over the amortization of the loan.

Interest  Prime Lending Rate –Referred to as “Prime” –Baseline rate used by all financial institutions, set by the Bank of Canada  Fixed Rate Loans –Interest rates stay the same for the entire term, regardless of changes to prime.  Variable Rate Loans –Interest is charged in relation to Prime. –Ie. Prime + 1% –If Prime changes, so does the interest charged

Our Calculations  We will focus on fixed rate loans.  Table provides monthly payment per $1000 borrowed. –Multiply this value by # of 1000’s  Example –$3000 at 4.5% for 3 years –$29.80 x 3 = $89.40

Example  Jesse needs a personal loan of $10,000. His bank offers him a three year loan at a fixed rate of 10.25%.  Calculate the: –Monthly payment –Cost of borrowing (total interest paid)

Assignment Module 3 Lesson 5 Quiz after next class!