Question

9. Calculating an installment loan payment using the add-on method Calculating the loan payment on an...

9. Calculating an installment loan payment using the add-on method

Calculating the loan payment on an add-on interest installment loan

Installment loans allow borrowers to repay the loan with periodic payments over time. They are more common than single–payment loans because it is easier for most people to pay a fixed amount periodically (usually monthly) than budget for paying one big amount in the future. Interest on installment loans may be computed using the simple interest method or the add-on method.

The add-on method is a widely used technique for computing interest on installment loans. With the add-on method, interest is calculated by applying the stated interest rate to the ......balance of the loan. Finance charges using the add-on method are computed using the simple interest formula:

FsFs = P x r x t

In the equation, FsFs is the finance charge for the loan. What are the other values?

P is the ... amount of the loan.

r is the stated ... rate of interest.

t is the term of the loan in     ....

You’re borrowing $10,000 for two years with a stated annual interest rate of 8%. Complete the following table. (Note: Round your answers to the nearest dollar.)

Principal $10,000
Finance charge $
Total payback $

You will make monthly payments throughout the life of the loan, in this case, ....

months.

What will your monthly payments be? Round your answer to the nearest cent. ..$

Homework Answers

Answer #1

Solution

1. With the add-on method, interest is calculated by applying the stated interest rate to the beginning balance of the loan.

2. P is the principal amount of the loan.

3. r is the stated annual rate of interest.

4. t is the term of the loan in years.

5. Finance charge Fs = P*r*t = 10,000*8%*1 = 800

6. Total payback = principal amount + finance charge = 10000 + 800 = 10800

7. You will make monthly payments throughout the life of the loan, in this case, 12 months.

8. Monthly payments:

Total payback/number of months = 10800/12 = 900

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Using the simple interest method, find the monthly payments on a $3,500 installment loan if the...
Using the simple interest method, find the monthly payments on a $3,500 installment loan if the funds are borrowed for 36 months at an annual interest rate of 9%. Use financial calculator to answer the question. Round the answer to the nearest cent. $______ per month Assume that interest is the only finance charge. Use financial calculator to answer the questions. How much interest would be paid on a $7,000 installment loan to be repaid in 48 monthly installments of...
Calculate the amount financed, the finance charge, and the monthly payments (in $) for the add-on...
Calculate the amount financed, the finance charge, and the monthly payments (in $) for the add-on interest loan. (Round your answers to the nearest cent.) Purchase (Cash) Price Down Payment Amount Financed Add-on Interest Number of Payments Finance Charge Monthly Payment $2,000 15% $ 14.5% 30 $ $
Calculate the amount financed, the finance charge, and the monthly payments for the following add-on interest...
Calculate the amount financed, the finance charge, and the monthly payments for the following add-on interest loan. Do not round intermediate calculations. Round your answers to the nearest cent. Purchase (Cash) Price Down Payment Amount Financed Add-on Interest Number of Payments Finance Charge Monthly Payment $51,500 30% $ 6.2% 60 $ $ Answer for amount financed, Finance charge and monthly payment. Thumbs Up for a correct answer!!!
Liz wishes to take out an installment loan to finance the purchase of a sofa costing...
Liz wishes to take out an installment loan to finance the purchase of a sofa costing $1,100. Her loan requires a 25% down payment and equal monthly payments of $29.10 for 36 months. What is the amount of the finance charge on this loan?
You purchase a dining set costing $1,800 by taking out a 12% add-on interest installment loan....
You purchase a dining set costing $1,800 by taking out a 12% add-on interest installment loan. The loan requires a 15% down payment and equal monthly payments for 4 years. How much are your monthly payments?
Shannon purchases a computer system costing $1,300 by taking out an 11% add-on interest installment loan....
Shannon purchases a computer system costing $1,300 by taking out an 11% add-on interest installment loan. The loan requires a 25% down payment and equal monthly payments for 4 years. How much are Shannon's monthly payments?
Frank finances a motor home for $44,300 by taking out an installment loan for 36 months...
Frank finances a motor home for $44,300 by taking out an installment loan for 36 months with the monthly payment of $1,784.31. After 21 months, Francis decided to pay off the loan. After calculating the finance charge rebate, find the loan payoff amount. $22,490.17 $23,897.36 $22,417.77 $23,172.73
Sherman Jacobs plans to borrow $10,000 and to repay it in 36 monthly installments. This loan...
Sherman Jacobs plans to borrow $10,000 and to repay it in 36 monthly installments. This loan is being made at an annual add-on interest rate of 14 percent. Calculate the finance charge on this loan, assuming that the only component of the finance charge is interest. Round the answer to the nearest cent. Use your finding in part (a) to calculate the monthly payment on the loan. Round the answer to the nearest cent. Using a financial calculator, determine the...
What is the difference between the interest expense calculations between simple installment loan and add-on loan...
What is the difference between the interest expense calculations between simple installment loan and add-on loan (also referred as Flat rate loan in Hong Kong) ?
In Chapter 1 of the text we looked at calculating a monthly payment for a loan....
In Chapter 1 of the text we looked at calculating a monthly payment for a loan. A related formula is to calculate the amount accruing when regular payments are made into an interest bearing account - often called the Savings Plan formula. (A is the accrued amount after t years of making regular payments, PMT, into an account at interest rate, r%, compounded n times each year.)         A(t) = PMT·((1 + r/N)N·t - 1)/(r/N)                  = PMT*((1 + r/N)^(N*t) -...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT