Name:______Block:______Date:______

Contemporary Mathematics

11.4 Notes

Installment Buying

Open-ended installment loan-

Fixed installment loan-

Truth in Lending Act :

Annual percentage rate (APR)-

Finance charge-

Example 1:Carlos Ramirez wishes to buy kitchen appliances totaling $3200. The ApplianceCenter has a finance option of no down payment and 6.5% APR for 36 months.

a.Determine the finance charge using Table 11.2 on page 623 of your text book.

b.Determine the monthly payment.

Example 2: Mary Smith wishes to buy a high-definition plasma tv for $4500. The electronics store has an advertised finance option of no down payment and 7% APR for 24 months.

  1. Determine the finance charge.
  1. Determine the monthly payment.

Example 3: Determining the APR

John and Jamie Ford are purchasing a piano for $5000, including taxes. They decide to make a $1000 down payment and finance the balance, $4000, through their credit union. The loan officer informs them that their payment will be $121 per month for 36 months.

  1. Determine the finance charge.
  1. Determine the APR.

Example 4: Financing a Restored Car

Mario Batali borrowed $9800 to purchase a classic 1965 Ford Mustang. He does not recall the APR of the loan but remembers that there are 48 payments of $237. If he did not make a down payment on the car, determine the APR.

Think about this: If Mario decides to repay the loan after making 30 payments, must he pay the total finance charge?

Yes or no? Explain.

Two methods are used to determine the finance charge when you repay an installment loan early.

The actuarial method used the APR tables.

The rule of 78s does not use the APR tables and is less frequently used.

Actuarial methodRule of 78s

Example 5: Using the Actuarial Method

In the previous example, we determined the APR of Mario’s loan. Instead of making his 30th payment of his 48-payment loan, Mario wishes to pay his remaining balance and terminate the loan.

  1. Use the actuarial method to determine how much interest Mario will save (the unearned interest, u) by repaying the loan early.
  1. What is the total amount due to pay off the loan early on the day he makes his final payment?

Open Ended Installment Loan

A ______is a popular way of making purchases or borrowing money.

Typically ______statements contain the following information:

balance at the beginning of the period

the transactions for the period

payment due date

Example 6: Holiday Shopping Charges

During holiday shopping in November, Nicole shared the following items to her Discover card: a set of tools for her husband ($250), an original print from a local artist for her daughter ($`155), a set of classical music CDs for her friend ($100) and a gift certificate to a bookstore for her boss ($15). Her balance on December 1 is $150 + $155 + 100 + $15, or $520. The bank requires payment within 36 months and charges an interest rate of 0.03490% per day.

  1. Determine the minimum payment due on December 1.
  1. On December 1, Nicole makes a payment of $100. Determine the balance due on January 1, assuming that there are no additional charges or cash advances.