1. Chapter 4
Loans and Credit Cards

2. 4.1 Promissory Notes

3. Interest-Bearing Promissory Notes
Promissory Note – Your written promise, or IOU, that you will repay the $ to the lender on a certain date.
Interest – What you pay to use the lender’s $.
Collateral – Lenders may require a borrower to deposit or pledge property as security for a loan.

4. Home equity – The difference between what the home could be sold for and what is owed on it.
Principal – amount borrowed on a promissory note
Date of the note – date note is signed
Due date – Date on which $ must be repaid

5. P x R x T = I
Principal Rate Time Interest
2500 x x 0.5 (6/12) =
P R T =
B x 0.12 x 1.5 (18/12) =
= 4130

6. Exact Interest Method Note is calculated on number of days
Exact Interest uses a 365 day year
Ex: note for 90 days shown as 90/365

7. C x 0.08 x 75/365 = =
D x 0.09 x 150/365 = =

8. Ordinary Interest Method
Banker’s Interest Method – Uses a 360 day year – 30 days per month
E x 0.12 x 180/360 =
= 6254
F x 0.09 x 120/360 =
= 4120

9. Rate of Interest Rate of = Interest for 1 Year / Principal Interest
If interest is given for part of the year have to find interest for full 1 year.

10. G. 320 x 3 = 960 / 8000 = 0.12 x 100 = 12%
H. 450 x 4 =1800 / = 0.15 x 100 =15%

11. 4.2 Discounted Promissory Note

12. Discounted Promissory Notes
Short-term loans – 30, 60, 90 days
Interest is collected in advance – Bank Discount
Since interest is paid in advance it is a noninterest-bearing note.

13. Principal x Rate of Discount = Bank Discount
Principal – Bank Discount = Proceeds (what you get)
9600 x 0.10 x 0.75(9/12) = 720
9600 – 720 =8880
B x 0.13 x 0.25(3/12) = 416
12800 – 416 = 12384

14. True Rate of Interest
Interest rate is based on full principal amount – but you don’t receive full principal benefits
True Rate = Interest / Actual Amount Interest Borrowed

15. C. 25000 – 23250 = 1750 for 6 months need 1 year
1750 x 2 = 3500 / = x 100 = 15.1%
D – 2496 = 104 x 3 = 312
312 / 2496 = x 100 = 12.5%

16. 4.3 Interest Tables Table can be used as a quick reference
Table based on $100 for 365 day year
Steps to find interest:
Principal / $100 =
Use time and interest rate in table to find multiplier x answer from #1

17. 620 / 100 = 6.2
x 6.2 = 2.04
B. 550 / 100 = 5.5
x 5.5 = 4.01

18. C / 100 = 13.2
= x 13.2 = 14.46
D. 740 / 100 =7.4
= x 7.4 = 15.08
E. 350 / 100 = 3.5
= x 3.5 = 4.60

19. Due Dates F. March 6 > April 6 > May 6 > June 6 1 m 1 m 1 m
G. March 31 > April 30 > May 31
1 m 1 m

20. 4.4 Installment Loans

21. Installment Price and Finance Charge
Down Payment – Reduces the amount of the loan
Installment Contract
Installment price is higher than cash price because seller adds a finance charge

22. 12 months x $9 = = 133
6 months x $26.17 = =177.02

23. Monthly Installment Payments
Sometimes need to find the amount of the payment
C.175 – 25 = 150/15 =$10
D – 100 = 944/59 =16 months

24. 4.7 Credit Card Costs
Transactions include purchases, payments and fees
Charges are credits
Previous balance
Late fee
Credit Limit
Over-the-limit fee
Cash advance
Finance charges
APR
New Balance
Minimum Payment Due

25. 3/25
316.15
B %
235.13

26. Verify Transactions Compare receipts to statement
Unauthorized purchases C
434.44 D
158.77

27. Cost of Credit Card Use Finance Charges and Fees are big factors
97.16 F
73.15