What Do You
Know About Loans?
Know About Loans?
What is maturity value?
The total amount you owe at the end of a loan (principal + interest)
Give a real life example of a single payment loan.
Payday loan
You buy a car for $28,000 and get a loan at 4.25% interest for 6 years. What will be your monthly payment?
$441.26
You just bought your first house for $175,000! If you are required to make a 20% down payment, how much will you have to borrow?
$140,000
How do you decide which of our "big" formulas to use when?
Use p= when you are asked to find a payment.
Use A= when you are asked how much you can afford to borrow.
What is the difference between ordinary and exact interest?
Ordinary = 360 days in the year
Exact = 365 days in the year
You get a loan for $1500 and promise to pay it back in 50 days at an exact interest rate of 7.5%. What is the interest you will pay?
$15.41
You buy a car for $28000 and get a loan at 4.25% for 6 years. You also decide to make a 15% down payment. How much lower is your monthly payment with the down payment than if you hadn't made one?
No down payment = $441.26
With down payment = $375.07
Difference = $66.19
You just bought your first house for $175,000 and are making a 20% down payment. If your mortgage is at 3.75% for 30 years, what will be your monthly payment?
$648.36
$111,347.49
What is amortization?
The way that a payment on a loan is split into principal and interest.
You get a loan for $2350 and promise to pay it back in 90 days with ordinary interest at a rate of 5.75%. What is the maturity value on this loan?
$2383.78
You buy a car for $28000 and get a loan at 4.25% interest for 6 years (no down payment). What is the total you will pay for this car?
$31,770.72
You bought your first house for $175,000 and made a 20% down payment on it. If your mortgage is 3.75% for 30 years, how much of the first payment goes to interest?
$437.50
You have been making payments on your $2500 loan for 6 months and want to pay it off instead of paying the full 2 years. You know that right now you still owe $4,569.73. If your interest rate is 7.8%, what is your payoff amount?
$4599.43
What are the three ways we learned to create an amortization table?
2. Online loan calculator
3. Spreadsheet/Google Sheets
Why do we use 1/12 in the interest formula for single-payment loans?
1/12 is the t value which represents 1/12 of a year or one month (for monthly payments)
You buy a car for $28000 and get a loan at 4.25% for 6 years (no down payment). What is your finance charge?
$3770.72
You bought your first house for $175,000 and made a 20% down payment on it. If your mortgage is 3.75% for 30 years, how much of the first payment goes to principal?
$210.86
You have borrowed $54,000 for a new truck at a rate of 2.95% for 7 years. Your monthly payment is $152.59. How much of your first payment goes toward interest and how much goes toward principal?
Interest = $132.75
Principal = $19.84
According to our notes, what are the three ways we learned to reduce the amount of interest you pay on a loan?
1. Make a down payment
2. Get a shorter term for the loan
3. Improve your credit score so you get a lower rate.
Ordinary - they make more money!
You have been making payments on your car loan for a couple of years and currently owe $7880. If your loan is for 4.25%, how much would you need to pay it off on the next payment?
Next month's interest = $27.91
Payoff amount = $7907.91
You are buying your first house for $175,000 and are putting 20% down. What would be the difference in your payment if you got a 15 year loan at 3.75% instead of a 30 year loan at 3.75%?
30 year loan = $648.36/month
15 year loan = $1018.11/month
Difference = $369.75
The 18 month loan will charge $16.43 less in interest than the 24 month loan