INSTALLMENT BUYING WALTER S SORILLO MAED MATHEMATICS REPORTER

INSTALLMENT BUYING WALTER S. SORILLO MAED – MATHEMATICS REPORTER

WHAT IS INSTALLMENTS-BUYING? Buying on an installment plan is usually referred to as deferred-payment or time-payment plan. Installment-buying, thus refers to the type of purchase which requires the buyer to pay a down payment upon purchase, and to pay the remaining balance in several periodic payments within a specified time span. The total sum paid through installment is usually higher than the regular cash price. 2 14 -2

COST OF INSTALLMENT BUYING Deferred payment price (DPP) – Amount financed (AF) – the amount actually borrowed. AF = Cash price -- Down payment the total of all monthly payments plus the down payment. DPP = Total of all + Down monthly payments payment Finance charge (FC) – Installment loan – the interest charge. A loan paid off in a series of equal periodic payments. Payments include interest and principal. FC = Total of all -monthly payments Amount financed 14 -3

COST OF INSTALLMENT BUYING Mary Wilson would like to buy a boat that cost $9, 345. If she puts down $300 she can finance the balance for 60 months at 10. 5% (monthly payment = $194. 38). Calculate the amount financed, finance charge, and deferred payment price. Amount financed = Cash price -- Down payment $9, 045 = $9, 345 -- $300 Finance charge = $2, 617. 80 Total of all -- Amount monthly payments financed = $11, 662. 80 -- $9, 045 ($194. 38 x 60) Deferred payment Price = $11, 962. 80 Total of all + Down monthly payments = $11, 662. 80 + $300 14 -4

ANNUAL PERCENTAGE RATE (APR) Calculating APR rate by table Truth in Act Lending st be APR mu to accurate st the neare 1/4 of 1% Finance charge x $100 = Table 14. 1 Amount financed lookup number $2, 617. 80 x 100 = $28. 94 $9, 045 Between 10. 25% -- 10. 50% 14 -5

ANNUAL PERCENTAGE RATE TABLE PER $100 (TABLE 14. 1) 14 -6

CALCULATING THE MONTHLY PAYMENT BY FORMULA The pickup truck advertisement below shows a $194. 38 monthly payment. We can check this by formula and by table lookup. Finance charge + Amount financed Number of payments of loan $2, 617. 80 + $9, 045 = $194. 38 60 14 -7

CALCULATING THE MONTHLY PAYMENT BY TABLE Step 1. Divide the loan amount by $1, 000. $9, 045 = 9. 045 $1, 000 Step 2. Look up the rate (10. 5%) and the number of months (60). At the intersection is the table factor showing the monthly payment per $1, 000 ($21. 49). Step 3. Multiply the quotient in Step 1 by the factor in Step 2. 9. 045 x $21. 49 = $194. 38 14 -8

LOAN AMORTIZATION TABLE (TABLE 14. 2) (MONTHLY PAYMENT PER $1, 000 TO PAY PRINCIPAL AND INTEREST ON INSTALLMENT LOAN) (PARTIAL) 14 -9

REFERENCES: Alteres, Priscilla S. et al. Mathematics of Investment. Manila: Rex Book Store. 2004. Alteres, Priscilla S. et al. Business Mathematics. Manila: Rex Book Store. 2003. Internet: 10 14 -10