On the top of your
graphic organizer, write
down 3 large ticket items
you
would like to purchase,
but cannot afford to pay
for all at once.
Installment Loans, Buying &
Credit Cards
Objectives
1.
2.
3.
4.
5.
Correctly calculate interest for installment loans
and purchases
Correctly calculate the interest rate (APR) when
buying through installments with a down
payment
Correctly calculate finance charges and amount
due on credit cards
Explain several advantages and disadvantages to
using credit cards
Locate several examples of local interest rates
Installment Loans (Part 1)

Installment/Consumer Loans




Face Amount


Repaid in small payments
One payment = One installment
Usually paid monthly
Amount of loan being borrowed (or the
amount received)
Finance Charge

Amount owed in addition to face amount
including costs and interest ($5,000 +
interest + costs)
Formulas




A. Interest per year =
Amount Borrowed X Interest Rate
B. Actual interest due =
Interest Per Year X Number of Years
C. Total amount to be repaid =
Amount Borrowed + Actual Interest Due
D. Amount of each monthly payment =
Total Amount to Be Repaid ÷ Number of Payments
Example

You want to borrow $1200 and repay it in
12 monthly installments. Your bank will
lend you the money with interest at the
yearly rate of 10%.




A.
B.
C.
D.
Find the interest per year
Find the actual interest due
Find the total amount to be repaid
Find the amount of each monthly payment
Solutions

A. Interest Per Year

$1200 x 10% (APR) =

= $120 Interest per year
B. $120.00 X 1 = $120.00
 C. Total to be repaid


$1200 + $120 =


$1320 Total amount to be repaid
D. Monthly payment

$1320/12 =

= $110 Payment per month
(12 months in a year)
Example

You want to borrow $2000 and repay it in
18 monthly installments. Your bank will
lend you the money with interest at the
yearly rate of 8%.




A.
B.
C.
D.
Find the interest per year
Find the actual interest due
Find the total amount to be repaid
Find the amount of each monthly payment
Solution

A. Interest per year

$2000 x 8% =


B. Actual interest rate

$160 x 1.5 years =


$240 actual interest
C. Total repaid

$2000 + $240 =


$160 interest per year
$2240
D. Amount per month

$2240/18 =

$124.44 payment per month (round your answer!)
Part I
Exercise 1
Exercise 2 Formulas



A. Total amount to be repaid =
Monthly Payment X Terms in Months
B. Finance Charge =
Total to Be Repaid - Loan Amount
C. APR (Annual Percentage Rate) =
Finance Charge ÷ Loan Amount ÷ Terms in Years
* Written in % format
Part I
Exercise 2
Class Examples

Assignment

Workbook part 1, Exercise 2
Installment Buying (Part 2)

Installment Plan



Examples?
Borrowing the seller’s money and paying it back in
partial payments
Usually weekly or monthly payments
Installment Buying (Part 2)

Down Payment



Amount paid before financing the balance
Example $1499 TV - $300 down payment
Finance Charge


Amount owed in addition to the face amount
Example $1600 TV + $150 finance charge

The Face Amount is the amount being borrowed
More Examples in History

Singer Sewing Machines


Automobile Industry


1850 first to offer payment plans
1910 first vehicle financed by consumers
Truth in Lending Act (1969)

Full disclosure of purchase terms
Formulas
A. Installment Price
= Monthly Payment X # of Months + Down Payment


B. Finance Charge
= Installment Price – Cash Price
Formulas

C. Amount Financed
= Cash Price – Down Payment

D. APR (Annual Percentage Rate)
= Finance Charge ÷ Amount Financed ÷ Terms in Years
Example

A TV set has a cash price of $800. The
installment terms are $50 down and $50 a
month for 18 months.




A.
B.
C.
D.
Find the installment price of the TV
Find the finance charge
Find the amount financed
Find the annual percentage rate (APR)
Solutions

A. Installment Price
 $50/month x 18 months =$900
 $900 + $50 down payment = $950 installment price

B. Finance Charge
 $950 installment price - $800 cash price = $150 finance chg
Solutions

C. Amount Financed
 $800 cash price - $50 down payment = $750 amt financed

D. APR
 $150/$750 = .20/1.5 yrs =.133 or 13% APR
Assignment
EXERCISE 3 IN
WORKBOOK
Review and Assignment

Question: If you cannot afford the cash
price for an item, how can an installment
plan work to your advantage?

An installment plan allows you to get the
item immediately, and make payments
on a weekly or monthly basis.
Credit Cards

Advantages



Allows large purchases
Help in emergencies
Develop good spending habits
Credit Cards

Disadvantages



Buy excessively without paying attention
whether they can pay the debt accumulated
May cost more than other forms of credit, like
a personal loan
Can damage credit rating
Credit Cards

Did you know:
1.
2.
The credit card was introduced Sept 15, 1958.
“Charge It” was the first bank card introduced in 1946
by John Biggins
1.
2.
Closed loop process
No card, bill forwarded to bank
Credit Cards

Did you know:
3.
The Diner’s Club card was first widespread credit card
1.
2.
4.
5.
Dinner story, first use of plastic/wood card
Must pay off each month
American Express, 1958, first full function plastic credit
card (purple color)
Super Bowl XX, in 1986, Discover Card was the first
card to offer payments over time.
Types of Credit Cards

Major Credit Cards


VISA, MASTERCARD, DISCOVER, CITIBANK,
AMERICAN EXPRESS
Offer general rewards programs
Types of Credit Cards

Retail Store Credit Cards


Kohl’s, Macy’s, Boscov’s, Bon-Ton
Only allow you to earn points and redeem
them for a particular brand of merchandise.
These cards will appeal to those who shop very
frequently at a particular retailer.
Credit Cards Billing Statement
Credit Cards Billing Statement
Blessing or a Curse?

Pros
 Convenience



Easier, quicker when making a purchase… not immediate bite out
of your pocket
People can borrow money easily and help fuel the purchase of
consumer goods and services no matter what their income
Rewards

There are cards that offer plane tickets, sports merchandise, and
good old-fashioned cash. Others build up a stockpile of points for
cardholders to use to get whatever their hearts desire.
Blessing or a Curse?

Pros
 Building Credit

Using a credit card—and using it responsibly—can help build one’s
credit score, which could mean a better shot at a loan or a better
mortgage down the road.
Blessing or a Curse?

Cons
 Late Payments


Once you fall behind by one payment, the climb back to a debtfree account becomes harder and harder. Late fees, interest, and
penalties build.
you may find yourself making monthly payments that only cover
your charges and don’t even touch your principal purchases.
Blessing or a Curse?

Cons
 Debt




Often as a result of late payments
fees and charges and piling interest, the matter seems to
continually get worse, not better.
Hidden Fees
Over-Spending
Millions are living beyond their means
The Future
Paypal
 Checkfree ~ Online Payments
 Pay by cell phone

The Future
Safety, security, identity theft?
 Chips imbedded in our body (1958
started)


Radio Frequency Identification
Concept Review
1.
2.
3.
How old is the credit card?
Which company had the first wide spread
credit card?
Explain one advantage and one
disadvantage to our society using credit
cards
Concept Review

http://www.youtube.com/watch?v=x0JK0H5o1Sg

http://www.youtube.com/watch?v=x0JK0H5o1Sg

https://www.blackcard.com/
Assignment
Exercise 5 & 6
 Time Limit 10 minutes
