Section 4.2
Loans (4.2)

Whenever you borrow money, you must sign
an agreement.
Promissory Note
States the conditions of the loan
Should read this carefully before signing
Loans (4.2)

 Some Key Terms:
 Cosigner:
Another person who agrees to pay back the
loan if the borrower is unable to do so.
 Life Insurance:
Sometimes required, in the event the borrower
dies before loan is paid off
 Wage Assignment:
Voluntary deduction from your paycheck to
pay off the loan
Loans (4.2)

 Some Key Terms:
 Wage Garnishment:
Involuntary form of wage assignment
 Balloon Payment:
The last payments can be higher than the
previous. These are called balloon payments.
Loans (4.2)

 Where can you go to take out a loan?
o
o
o
o
o
Banks
Credit Unions
Consumer Finance Companies
Life Insurance Companies
Pawnshops
Loans (4.2)

 Banks
 Offer good interest rates
 Must have good credit or have a cosigner
 Credit Unions
 Provided for members only
 Members usually work in the same office, be in the
same profession, live in the same complex, etc.
 Typically offer the lowest interest rate
Loans (4.2)

 Consumer Finance Companies
 Offer loans to those with poor credit
 Charge high interest rates
 Life Insurance Companies
 Offer loans to their policyholders
 Interest rate is based on the coverage a person has
 Minimal risk to life insurance company
Loans (4.2)

 Pawnshops
 Short-term loans
 Leave a personal belonging as collateral
 Most loans are only 30-, 60-, or 90-days
 Loan Sharks
 Illegal
 Extremely high interest
 No credit check
Loans (4.2)

 Figuring out your monthly payments
 Chart on page 183 of the book
 This is for $1,000 principal
Loans (4.2)

 What is the monthly payment for a $4,000 two-year
loan with an APR of 8.5%?
From chart: 45.46
For $4,000, multiply 45.46 by 4
= $181.84 monthly payment
Loans (4.2)

 Juan is borrowing $41,000 for 5 years at an APR OF
6.5%. What is the monthly payment?
From chart: 19.57
For $41,000, multiply this by 41
= $802.37
Loans (4.2)

 How much would you have to pay back, in total, if
you borrowed $5,000 for 4 years at an interest rate of
8.25%?
From chart: 24.53
For $5,000, multiply this by 5
Monthly Payment = $122.65
How much would this cost for 4 years?
($102)(48) = $5,887.20
Loans (4.2)

 Page 185, 2-8
Loans (4.2)

 Many students asked about “student loans” on the
midterm.
 Quick video from youtube on student loans:
Section 4.2
Loans (4.2)

 Last week, we started calculating the monthly
payments on loans using the chart on page 183.
 Find the rate & time period of the loan
 Multiply the number in the intersecting box by the
principal of the loan
Loans (4.2)

 Find the monthly payment for a $10,000 loan at
10.5% for 4 years.
From chart: 26.50
For $10,000, multiply this by 10
= $265.00
Loans (4.2)

 Last week, we began working on numbers 2-8 on
page 185
Section 4.2
Loans (4.2)

2) Arrange the following in descending order:
9 ½ %, 9%,
3
9
8
%, 9.45%, 9
9
%
16
Loans (4.2)

3) How many more monthly payments are made for a
five-year loan than for a two-year loan?
Loans (4.2)

4) How many monthly payments must be made for a
2 ½ year loan?
Loans (4.2)

5) Bart needs to borrow $7,000 from a local bank. He
compares monthly payments for a 9.75% loan for
three different periods of time.
a) What is the monthly payment for a one-year loan?
b) What is the monthly payment for a three-year loan?
c) What is the monthly payment for a five-year loan?
Loans (4.2)

6) Rachel has a $10,000, three-year loan with an APR of
7.25%.
a) What is the monthly payment?
b) What is the total amount of the monthly payments?
c) What is the finance charge?
Loans (4.2)

7) Melissa wants to check the accuracy of the finance
charge on her promissory note. She has a $6,000,
four-year loan at an APR of 10%.
a) What is the monthly payment?
b) What is the total amount of the monthly payments?
c) What is the finance charge?
Loans (4.2)

8) The policy of the Broadway Pawnshop is to lend up
to 35% of the value of a borrower’s collateral. John
wants to use a $3,000 ring and a $1,200 necklace as
collateral for a loan. What sit eh maximum amount that
he could borrow from Broadway?
Loans (4.2)

 You are buying a new car and need a loan of $28,716.
You plan on taking out a 4-year loan at an APR of
5.12%. What is your monthly payment?
 When the number of years or APR are not on the
chart, we must use the monthly payment formula.
Loans (4.2)

 Monthly Payment Formula:
𝑟
𝑟 12𝑡
P
1+
12
12
M=
𝑟 12𝑡
1+
−1
12
M = Monthly Payment
r = Interest Rate
P = Principal
t = Number of Years
Loans (4.2)

 You are buying a new car and need a loan of $28,716.
You plan on taking out a 4-year loan at an APR of
5.12%. What is your monthly payment?
0.0512
0.0512
28,716
1+
12
12
M=
0.0512 12 ∙4
1+
−1
12
12 ∙ 4
Loans (4.2)

 You are buying a new car and need a loan of $28,716.
You plan on taking out a 4-year loan at an APR of
5.12%. What is your monthly payment?
150.302762
M=
= $662.87
0.226745015
Loans (4.2)

 Juliana is taking out an $8,700, 3 ½ year loan with an
APR of 9.31%. What will the monthly payment be
for this loan?
0.0931
0.0931 12 ∙3.5
8,700
1+
12
12
M=
0.0931 12 ∙ 3.5
1+
−1
12
Loans (4.2)

 Juliana is taking out an $8,700, 3 ½ year loan with an
APR of 9.31%. What will the monthly payment be
for this loan?
93.38054573
M=
= $243.52
0.383466732
Loans (4.2)

 On pages 185 & 186, continue working on numbers 9
– 16 (skip 15)
Loans (4.2)

 The Fortunato family is buying a $430,000 home.
They are taking out a 30-year mortgage at a rate of
8%.
Loans (4.2)

 The Fortunato family is buying a $430,000 home.
They are taking out a 30-year mortgage at a rate of
8%.
Loans (4.2)

 The Fortunato family is buying a $90,000 home.
They are taking out a 30-year mortgage at a rate of
4.5%.