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Name______________________________________________Hour: _________Vocabulary and Notes Chapter 5: Lines of Credit/LoansCredit_________________________________________________________________________________________________Deferred payment price__________________________________________________________________________________Down payment_________________________________________________________________________________________Finance charge_________________________________________________________________________________________right277668Monthly Payment Formula00Monthly Payment FormulaInstallment loan_________________________________________________________________________________________Example: Taylor Swift has found a used car she wants to buy. She is going to put a down payment on the car and needs to borrow $4500. Use the monthly payment formula to find her monthly payment if she borrows $4500 for a 5-year term at an interest rate of 8%.How much will she pay for the car over the course of 5 years?-59055300355Amount Formula00Amount FormulaExample: What is the amount of money Kristin can borrow at 6% for 3 years if she can afford a monthly payment of $325?Signs you are suffering from credit debt:_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Amortize______________________________________________________________________________________________Discretionary income____________________________________________________________________________________-361951266190Loans with Down Payment00Loans with Down PaymentExample: Compare a loan for a 1992 Oldsmobile Achieva for $1200 at 6% vs. 8% over 3 years.Monthly Payment 6%Total Payment 6%Monthly Payment 8%Total Payment 8%Total savingsExample: What is the down payment on a car for $25,000 if they want to put 10% down?1905258445Loan Amount00Loan AmountExample: What is the loan amount after they make a 10% down payment? right291465Total Amount00Total AmountExample: Find the total amount paid for the $25,000 car. The loan is for 5 years at 12%.Amortization schedule____________________________________________________________________________________Payment number________________________________________________________________________________________Interest due____________________________________________________________________________________________Note reduction__________________________________________________________________________________________Unpaid balance_________________________________________________________________________________________Prepayment penalty_____________________________________________________________________________________4445310515Amortization Schedule Formulas…where: L = loan amountI1 = interest due at the end of month 1 r = monthly interest rateR1 = loan reduction at the end of month 1P = payment amountB1 = balance at the end of month 100Amortization Schedule Formulas…where: L = loan amountI1 = interest due at the end of month 1 r = monthly interest rateR1 = loan reduction at the end of month 1P = payment amountB1 = balance at the end of month 1152401113155Rule of 7800Rule of 78Example: Darren Helm wants to know what his loan amortization schedule will look like for the first 3 months of his loan for $4343 for 3 years at 8%.Payment #Payment AmountInterest DueNote ReductionUnpaid Balance$4343.00123Month 1:Interest Due:Note Reduction:Unpaid Balance:Month 2:Interest Due:Note Reduction:Unpaid Balance:Month 3:Interest Due:Note Reduction:right419735Prepayment Formula00Prepayment FormulaUnpaid Balance:Example: You want to prepay your car loan. You have been making monthly payments of $380.43 on a 4 year loan of $15,000 at 10%. How much will you owe if you prepay 12 months early? How much would you have saved?right113Rule of 78020000Rule of 78Example: We purchased a new XBOX 360 for $299.99 and we put $99.99 down. We signed an agreement stating that the balance was to be paid in 12 equal installments with an interest rate of 24% per year. We want to prepay and the Microsoft Company is going to apply the Rule of 78. How much interest will we save?Cash discounts__________________________________________________________________________________________Market rate____________________________________________________________________________________________Rebate________________________________________________________________________________________________Example: Which plan yields the lowest total financed price to the customer for a $28,500 new car?Plan 1: Offers the full $2500 factory rebate with only bank financing (market rate is 13.5% for 3 years)Plan 2: Offers a $1000 rebate and financing at 7.5% for 36 monthsPlan 3: Offers a purchase prices of $28,500 – no rebate – and financing at 2.9% for 36 months.Plan 1Plan 2Plan 3Rebate$2500$1000$0Rate13.5%7.5%2.9%Time36 months36 months36 monthsLoan AmountMonthly PaymentTotal Financed Price Which plan yields the highest profit?Plan 1Plan 2Plan 3InterestRebate Not PaidProfitInterest = Rebate not Paid = Profit = Example: How much money would you save if you financed an $1800 Samsung 46 inch 3D LCD TV at 9% for 3 years rather than accepting a rent-to-own plan for which you pay $65 per month for 3 years? ................
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