Podcast
Questions and Answers
What type of loan is specifically intended for personal or family use?
What type of loan is specifically intended for personal or family use?
Which of the following loans requires the pledging of assets as collateral?
Which of the following loans requires the pledging of assets as collateral?
What type of loan can be borrowed repeatedly and is commonly associated with credit cards?
What type of loan can be borrowed repeatedly and is commonly associated with credit cards?
Which loan type is designed to help cover the costs of college education?
Which loan type is designed to help cover the costs of college education?
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What factor assesses a borrower's honesty and reliability in repaying a debt?
What factor assesses a borrower's honesty and reliability in repaying a debt?
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Which component of credit assesses the borrower's income and ability to pay back debt?
Which component of credit assesses the borrower's income and ability to pay back debt?
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What is a characteristic of a closed-ended loan?
What is a characteristic of a closed-ended loan?
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Which type of loan is termed as unconventional and typically offered for a very short duration?
Which type of loan is termed as unconventional and typically offered for a very short duration?
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What does the term 'collateral' refer to in the context of a loan?
What does the term 'collateral' refer to in the context of a loan?
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Which of the following formulas represents the present value of an ordinary simple annuity?
Which of the following formulas represents the present value of an ordinary simple annuity?
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In constructing an amortization schedule, what information is typically recorded?
In constructing an amortization schedule, what information is typically recorded?
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What is the main purpose of amortization in loan repayment?
What is the main purpose of amortization in loan repayment?
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What does the outstanding principal represent in the context of an amortization schedule?
What does the outstanding principal represent in the context of an amortization schedule?
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When calculating the future value of a loan with compound interest, which factor is NOT required?
When calculating the future value of a loan with compound interest, which factor is NOT required?
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How often is the interest compounded in Jimmy's loan scenario?
How often is the interest compounded in Jimmy's loan scenario?
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What is the typical format of presenting an amortization schedule?
What is the typical format of presenting an amortization schedule?
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Study Notes
Loans
- Loans provide funds for purchases, investments, or expansion.
- Understanding loan terms and conditions, especially the payment method, is crucial.
Common Types of Loans
- Consumer Loan: Intended for personal, individual, or family use. Examples include appliance, housing, and vehicle purchases.
- Business Loan: Intended for business purposes. Includes mezzanine financing, asset-based financing, and invoice financing.
Other Types of Loans
- Secured Loan: The borrower pledges assets (collateral) as security. The lender can seize the collateral if the loan isn't repaid.
- Unsecured Loan: Not secured against the borrower's assets.
- Open-ended Loan: Can be borrowed repeatedly. Examples include credit cards and lines of credit.
- Closed-ended Loan: Can only be borrowed once and repaid.
- Mortgage: A common debt instrument used for housing purchases. The borrower pays a down payment and repays the debt plus interest.
- Student Loan: Provided to students to help pay for college education.
- Personal Loan (Signature Loan): Granted to individuals.
- Demand Loan: An unconventional loan for very short-term use.
5Cs of Credit
- Credit Score: Assesses factors impacting a borrower's creditworthiness. It's complex, dynamic, and influenced by debt management.
- Character: Based on the borrower's credit history, honesty, reliability, past payment history, and background.
- Capacity: Evaluates the borrower's ability to repay debt based on income (occupation, income stream).
- Condition: Considers the economic conditions affecting the loan's purpose.
- Capital: The lender assesses the borrower's assets or property to cover debt repayment if income is unavailable.
- Collateral: Assets pledged by the borrower as security for repayment if the loan isn't repaid.
Amortization
- Amortization combines principal and interest payments in equal installments over a period.
- Equal payments consist of interest and a portion of the principal.
- Outstanding principal is the remaining liability or balance.
- Amortization schedules are presented in tables showing interest, principal, and outstanding balances for each payment period.
Present Value of an Amortization
- R = size of each annuity
- r = rate of annuity
- m = period of year
- n = number of payments (n=mt)
- i = interest per conversion period (i=r/m)
- PV = present value of ordinary simple annuity
Periodic Payment of an Amortization
- Formula for calculating the periodic payment (R) on an amortized loan:
R=PV(i) / 1-(1+i)-n
Example Loan Scenarios (from the provided text)
- Various loan scenarios and examples are provided in the text, including specific amounts (e.g., Php 120,000), interest rates, and loan terms. Details of these examples can be found in the provided example texts. These examples are about calculating a periodic payment amount to amortize a loan and present value of a loan.
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