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SECTION 8-3 Simple Interest Installment Loans pp

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**Section Objective Figure out: monthly payment on an installment loan**

total amount repaid on an installment loan finance charge on an installment loan

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**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.

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**Formula 1 Monthly Payment =**

Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan

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

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Formula 3 Finance Charge = Total Amount Repaid – Amount Financed

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**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?

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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?

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**Example 1 Answer: Step 1 Find the monthly payment.**

Amount of Loan ÷ $100 × Monthly Payments for a $100 Loan $1, ÷ $ × $5.91 = $106.38

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**Example 1 Answer: Step 2 Find the total amount repaid.**

Number of Payments × Monthly Payment 18 × $ = $1,914.84

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**Example 1 Answer: Step 3 Find the finance charge.**

Total Amount Repaid – Amount Financed $1, – $1, = $114.84

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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?

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**Example 2 Answer: Step 1 Find the amount financed.**

Selling Price – Down Payment $1, – (0.10 × $1,399.99) $1, – $ = $1,259.99

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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

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**Example 2 Answer: Step 3 Find the total amount repaid.**

Number of Payments × Monthly Payment 12 × $ = $1,342.68

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**Example 2 Answer: Step 4 Find the finance charge.**

Total Amount Repaid – Amount Financed $1, – $1, = $82.69

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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.

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**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?

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**Practice 1 Answer a. Down payment: $960 b. Amount of the loan: $3,840**

c. Monthly payments: $131.33 d. Finance charge: $887.88

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END OF SECTION 8-3 Simple Interest Installment Loans

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