On the top of your graphic organizer, write down 3 large ticket items you would like to purchase, but cannot afford to pay for all at once.

On the top of your graphic organizer, write down 3 large

ticket items you

would like to purchase, but

cannot afford to pay for all at once.

Installment Loans, Buying & Credit

Cards

Objectives1. Correctly calculate interest for installment loans

and purchases2. Correctly calculate the interest rate (APR) when

buying through installments with a down payment

3. Correctly calculate finance charges and amount due on credit cards

4. Explain several advantages and disadvantages to using credit cards

5. Locate several examples of local interest rates

Installment Loans (Part 1) Installment/Consumer Loans

Repaid in small payments One payment = One installment Usually paid monthly

Face Amount Amount of loan being borrowed (or the

amount received) Finance Charge

Amount owed in addition to face amount including costs and interest ($5,000 + interest + costs)

Formulas A. Interest per year =

Amount Borrowed X Interest Rate B. Actual interest due =

Interest Per Year X Number of Years C. Total amount to be repaid =

Amount Borrowed + Actual Interest Due D. Amount of each monthly payment =

Total Amount to Be Repaid ÷ Number of Payments

Example You want to borrow $1200 and repay it in

12 monthly installments. Your bank will lend you the money with interest at the yearly rate of 10%. A. Find the interest per year B. Find the actual interest due C. Find the total amount to be repaid D. Find the amount of each monthly payment

Solutions A. Interest Per Year

$1200 x 10% (APR) = = $120 Interest per year

B. $120.00 X 1 = $120.00 (12 months in a year)

C. Total to be repaid $1200 + $120 =

$1320 Total amount to be repaid

D. Monthly payment $1320/12 =

= $110 Payment per month

Example You want to borrow $2000 and repay it in

18 monthly installments. Your bank will lend you the money with interest at the yearly rate of 8%. A. Find the interest per year B. Find the actual interest due C. Find the total amount to be repaid D. Find the amount of each monthly payment

Solution A. Interest per year

$2000 x 8% = $160 interest per year

B. Actual interest rate $160 x 1.5 years =

$240 actual interest C. Total repaid

$2000 + $240 = $2240

D. Amount per month $2240/18 =

$124.44 payment per month (round your answer!)

Part IExercise 1

Exercise 2 Formulas

A. Total amount to be repaid =Monthly Payment X Terms in Months

B. Finance Charge =

Total to Be Repaid - Loan Amount C. APR (Annual Percentage Rate) =

Finance Charge ÷ Loan Amount ÷ Terms in Years

* Written in % format

Part IExercise 2

Class Examples Assignment

Workbook part 1, Exercise 2

Installment Buying (Part 2) Installment Plan

Examples? Borrowing the seller’s money and paying it back in

partial payments Usually weekly or monthly payments

Installment Buying (Part 2)

Down Payment Amount paid before financing the balance Example $1499 TV - $300 down payment

Finance Charge Amount owed in addition to the face amount Example $1600 TV + $150 finance charge

The Face Amount is the amount being borrowed

More Examples in History Singer Sewing Machines

1850 first to offer payment plans Automobile Industry

1910 first vehicle financed by consumers Truth in Lending Act (1969)

Full disclosure of purchase terms

Formulas A. Installment Price = Monthly Payment X # of Months + Down Payment

B. Finance Charge= Installment Price – Cash Price

Formulas C. Amount Financed

= Cash Price – Down Payment

D. APR (Annual Percentage Rate)= Finance Charge ÷ Amount Financed ÷ Terms in Years

Example A TV set has a cash price of $800. The

installment terms are $50 down and $50 a month for 18 months. A. Find the installment price of the TV B. Find the finance charge C. Find the amount financed D. Find the annual percentage rate (APR)

Solutions A. Installment Price

$50/month x 18 months =$900 $900 + $50 down payment = $950 installment price

B. Finance Charge $950 installment price - $800 cash price = $150 finance chg

Solutions C. Amount Financed

$800 cash price - $50 down payment = $750 amt financed

D. APR $150/$750 = .20/1.5 yrs =.133 or 13% APR

Assignment

EXERCISE 3 IN WORKBOOK

Review and Assignment Question: If you cannot afford the cash

price for an item, how can an installment plan work to your advantage?

An installment plan allows you to get the item immediately, and make payments on a weekly or monthly basis.

Credit Cards Advantages

Allows large purchases Help in emergencies Develop good spending habits

Credit Cards Disadvantages

Buy excessively without paying attention whether they can pay the debt accumulated

May cost more than other forms of credit, like a personal loan

Can damage credit rating

Credit Cards Did you know:

1. The credit card was introduced Sept 15, 1958.2. “Charge It” was the first bank card introduced in 1946

by John Biggins1. Closed loop process2. No card, bill forwarded to bank

Credit Cards Did you know:

3. The Diner’s Club card was first widespread credit card1. Dinner story, first use of plastic/wood card2. Must pay off each month

4. American Express, 1958, first full function plastic credit card (purple color)

5. Super Bowl XX, in 1986, Discover Card was the first card to offer payments over time.

Types of Credit Cards Major Credit Cards

VISA, MASTERCARD, DISCOVER, CITIBANK, AMERICAN EXPRESS

Offer general rewards programs

Types of Credit Cards Retail Store Credit Cards

Kohl’s, Macy’s, Boscov’s, Bon-Ton Only allow you to earn points and redeem them for

a particular brand of merchandise. These cards will appeal to those who shop very frequently at a particular retailer.

Credit Cards Billing Statement

Credit Cards Billing Statement

Blessing or a Curse? Pros

Convenience Easier, quicker when making a purchase… not immediate bite out

of your pocket People can borrow money easily and help fuel the purchase of

consumer goods and services no matter what their income

Rewards There are cards that offer plane tickets, sports merchandise, and

good old-fashioned cash. Others build up a stockpile of points for cardholders to use to get whatever their hearts desire.

Blessing or a Curse? Pros

Building Credit Using a credit card—and using it responsibly—can help build one’s

credit score, which could mean a better shot at a loan or a better mortgage down the road.

Blessing or a Curse? Cons

Late Payments Once you fall behind by one payment, the climb back to a debt-free

account becomes harder and harder. Late fees, interest, and penalties build.

you may find yourself making monthly payments that only cover your charges and don’t even touch your principal purchases.

Blessing or a Curse? Cons

Debt Often as a result of late payments fees and charges and piling interest, the matter seems to

continually get worse, not better.

Hidden Fees Over-Spending

Millions are living beyond their means

The Future Paypal Checkfree ~ Online Payments Pay by cell phone

The Future Safety, security, identity theft? Chips imbedded in our body (1958 started)

Radio Frequency Identification

Concept Review1. How old is the credit card?2. Which company had the first wide spread

credit card?3. Explain one advantage and one

disadvantage to our society using credit cards

Concept Review

http://www.youtube.com/watch?v=x0JK0H5o1Sg

http://www.youtube.com/watch?v=x0JK0H5o1Sg

https://www.blackcard.com/

Assignment Exercise 5 & 6 Time Limit 10 minutes