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Paying Off Simple Interest Installment Loans pp. 297-299 8-5 SECTION

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Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 2 of 20 8-5 Section Objective Compute: final payment when paying off a simple interest installment loan

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Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 3 of 20 8-5 final payment (p. 297) Payment on a simple interest loan that consists of the remaining balance plus the current month’s interest. Key Words to Know

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Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 4 of 20 8-5 Interest = Principal × Rate × Time Formula 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 5 of 20 8-5 Final Payment = Previous Balance + Current Month’s Interest Formula 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 6 of 20 8-5 Interest Saved = Total Payback – (Sum of Previous Payments + Final Payment) Formula 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 7 of 20 8-5 A Picture Perfect Loan p. 297 Why might a bank not encourage you to pay off a loan early?

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Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 8 of 20 8-5 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 9 of 20 8-5 Figure 8.2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 10 of 20 8-5 Find the previous balance. $913.70 Example 1 Answer: Step 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 11 of 20 8-5 Find the interest for the fourth month. Principal × Rate × Time $913.70 × 12% × 1/12 = $9.137 or $9.14 Example 1 Answer: Step 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 12 of 20 8-5 Find the final payment. Previous Balance + Current Month’s Interest $913.70 + $9.14 = $922.84 Example 1 Answer: Step 3

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Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 13 of 20 8-5 How much would the Collins in Example 1 save by paying off the loan early? Example 2

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Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 14 of 20 8-5 Step: Find the interest saved. Total Payback – (Sum of Previous Payments + Final Payment) (6 × $310.50) – [(3 × $310.50) + $922.84] = $1,863.00 – [$931.50 + $922.84] = $1,863.00 – $1,854.34 = $8.66 Example 2 Answer

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Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 15 of 20 8-5 Chanelle Thompson took out a simple interest loan of $2,200 at 15 percent for 6 months. Her monthly payment on the loan is $382.80. After 3 payments the balance is $1,120.72. She pays off the loan with the fourth payment. Practice 1

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Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 16 of 20 8-5 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.)

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Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 17 of 20 8-5 a. Interest: $14.01 b. Final payment: $1,134.73 c. Amount saved by paying off the loan early: $13.67 Practice 1 Answer

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Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 18 of 20 8-5 Alicia Fleming took out a simple interest installment loan of $8,300 at 8 percent for 18 months. The monthly payment is $490.53. After 5 payments, the balance is $6,094.80. 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

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Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 19 of 20 8-5 Amount due if she pays off the loan with the next payment: $6,135.43 Amount saved by paying off the loan early: $241.46 Practice 2 Answer

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Paying Off Simple Interest Installment Loans 8-5 END OF SECTION

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