7-1 WHAT ARE SINGLE-PAYMENT LOANS?
1.A single payment loan is a loan that you repay with
one payment after a specified period of time.
2.A promissory note is a type of single-payment loan.
It is a written promise to pay a certain date in the
future. The maturity value of the loan is the total
amount you repay. It includes both the principal and
the interest owed. The principal is the amount
borrowed.
3.The term of the loan is the amount of time for which
the loan is granted.
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7-1 WHAT ARE SINGLE-PAYMENT LOANS?
(Continued)
4. A single-payment loan may be granted for a
stated number of years, months, or days.
5. When the term is a certain number of days, the
lending agency may calculate interest in one of
two ways:
6. Ordinary interest is calculated by basing the time
of the loan on a 360-day year. Exact interest is
calculated by basing the time on a 365-day year.
Maturity Value= Principal + Interest Owed
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LET’s PRACTICE
Anita Sloane’s bank granted her a single-payment loan
of $7200 for 91 days at an interest rate of 12%. What is
the maturity value of the loan if: (1) her bank charges
ordinary interest? (2) her bank charges exact interest?
Find the ORDINARY INTEREST OWED. (Principal x
Rate x Time)
$7200
x
12% x 91/360 = $218.40 ordinary interest
Find the EXACT INTEREST OWED. (Principal x
Rate x Time)
$7200
x 12% x 91/365 = $215.41 exact interest
Find the MATURITY VALUE.(BASED ON 360 DAYS) (Principal + Interest Owed)
$7200
+
$218.40
= $7418.40 Maturity value
Find the MATURITY VALUE.(BASED ON 365 DAYS) (Principal + Interest Owed)
$7200
3
+
$215.41
= $7415.41 Maturity value