# SECTION 8-3 Simple Interest Installment Loans pp. 290-293.

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SECTION 8-3 Simple Interest Installment Loans pp

Section Objective Figure out: monthly payment on an installment loan
total amount repaid on an installment loan finance charge on an installment loan

Key Words to Know simple interest installment loan (p. 290)
A loan repaid with equal monthly payments. annual percentage rate (p. 290) An index showing the cost of borrowing money on a yearly basis, expressed as a percent.

Formula 1 Monthly Payment =
Amount of Loan ÷ \$100 × Monthly Payments for a \$100 Loan

Formula 2 Total Amount Repaid = Number of Payments × Monthly Payments

Formula 3 Finance Charge = Total Amount Repaid – Amount Financed

A Picture Perfect Loan p. 290
What do you think a bank looks for in a client who wants to take out a personal loan?

Example 1 Carla Hunt obtained an installment loan of \$1, to purchase some new furniture. The annual percentage rate is 8 percent. She must repay the loan in 18 months. What is the finance charge?

Example 1 Answer: Step 1 Find the monthly payment.
Amount of Loan ÷ \$100 × Monthly Payments for a \$100 Loan \$1, ÷ \$ × \$5.91 = \$106.38

Example 1 Answer: Step 2 Find the total amount repaid.
Number of Payments × Monthly Payment 18 × \$ = \$1,914.84

Example 1 Answer: Step 3 Find the finance charge.
Total Amount Repaid – Amount Financed \$1, – \$1, = \$114.84

Example 2 Tulio and Lupe Fernandez purchase a refrigerator with an installment loan that has an APR of 12 percent. The refrigerator sells for \$1, The store financing requires a 10 percent down payment and 12 monthly payments. What is the finance charge?

Example 2 Answer: Step 1 Find the amount financed.
Selling Price – Down Payment \$1, – (0.10 × \$1,399.99) \$1, – \$ = \$1,259.99

Example 2 Answer: Step 2 Find the monthly payment. (Refer to the Monthly Payment on a Simple Interest Installment Loan of \$100 on page 799 in your textbook). Amount of Loan ÷ \$100 × Monthly Payment for a \$100 Loan \$1, ÷ \$ × \$8.88 = \$ or \$111.89

Example 2 Answer: Step 3 Find the total amount repaid.
Number of Payments × Monthly Payment 12 × \$ = \$1,342.68

Example 2 Answer: Step 4 Find the finance charge.
Total Amount Repaid – Amount Financed \$1, – \$1, = \$82.69

Practice 1 A new heating and air conditioner will cost the Sangjun family \$4,800. They make a down payment of 20 percent and finance the remaining amount. They obtain an installment loan for 36 months at an APR of 14 percent.

Practice 1 (cont.) a. What is the down payment?
b. What is the amount of the loan? c. What are the monthly payments? d. What is the finance charge?

Practice 1 Answer a. Down payment: \$960 b. Amount of the loan: \$3,840
c. Monthly payments: \$131.33 d. Finance charge: \$887.88

END OF SECTION 8-3 Simple Interest Installment Loans