Summary

This document provides an overview of different types of loans, including consumer, business, secured, unsecured, open-ended, closed-ended, mortgages, student, personal, and demand loans, along with their relevant definitions and examples. It also explains the concept of amortization and provides steps in constructing an amortization schedule. Finally, it presents some practice questions related to loan calculations and amortizations.

Full Transcript

LOANS GEN MATH LOANS Loan provides funds to finance certain purchases, investment or expansion. It is useful to fully understand its terms and conditions especially the mode of payment. COMMON TYPES OF LOANS CONSUMER LOAN This kind of loan is intended for personal, individual or fa...

LOANS GEN MATH LOANS Loan provides funds to finance certain purchases, investment or expansion. It is useful to fully understand its terms and conditions especially the mode of payment. COMMON TYPES OF LOANS CONSUMER LOAN This kind of loan is intended for personal, individual or families. Appliances, housing and vehicular purchases are examples of consumer loan. COMMON TYPES OF LOANS BUSINESS LOAN This kind of loan is intended business purposes. Several loans such as mezzanine financing, asset- bsed financing and invoice financing are some of the kinds of business loan. OTHER TYPES OF LOANS 1. Secured and Unsecured Loans Secured Loan is a loan in which the borrower pledges assets or property as collateral. If you default on the loan, the bank will seize the pledge assets or property. Unsecured Loan is monetary loan that is not secured against the borrower’s assets. OTHER TYPES OF LOANS 2. Open-ended and Closed-ended Loans Open-ended Loan is a loan that can be borrowed over and over. Credit card and lines of credit are common types of open-ended loans. Closed-ended Loan is a loan that cannot be borrowed once they’ve been repaid. OTHER TYPES OF LOANS 3. Mortgage It is a very common type of debt instrument, used by many individuals to purchase housing. Mortgage works like this: money is used to purchase the property. The borrower pays a down payment based on the property. In return, the borrower pays off the debt with interest. OTHER TYPES OF LOANS 4. Student Loan It is a loan provided to students to help defray the costs of college education. OTHER TYPES OF LOANS 5. Personal Loan Also known as signature loan, it is a loan granted to an individual. 6. Demand Loan It is an unconventional loan unusual for a very short time. 5C’s of Credit Credit Score It is a measure of factors that may affect borrower’s ability to repay credit or loan. Computation of credit score is a complex things, since it takes into account many factors. It is dynamic and can change depending to the borrower’s debt management. CHARACTER This is based from the borrower’s credit history. It also determine the honesty and reliability to repay the debt, which includes a comprehensive review of his background, credit bureau report, past payment experience etc. CAPACITY This is based from the borrower’s ability to repay the debt. It considers the borrower’s occupation or income’s stream, to support his or her credit use. CONDITION This is based on the economic condition in which the intended purpose of the loan depends. CAPITAL This is determined by the lender if the borrower has any valuable assets or property to repay credit debts in the absence of income. COLLATERAL A form of security for the lender. It represents assets that an entity pledges as an alternative repayment source of a loan AMORTIZATION It is the combined payment of the principal and interest in sequence of equal installment payment over period of time. Equal payment is consisting of interest and a portion of the principal. Outstanding Principal is defined as the remaining liability or balance. PRESENT VALUE OF AN AMORTIZATION Where R = size of each annuity r = rate of annuity m = period of year n = number of payments in the annuity ( n = mt) i = interest per conversion period (i = r/m) PV = present value of ordinary simple annuity PERIODIC PAYMENT OF AN AMORTIZATION 𝑃𝑉 ( 𝑖) 𝑅= −𝑛 1− (1+𝑖) 3 4 ? 6 AMORTIZATION SCHEDULE This provides an information on how much amount should be paid every period, how much principal is applied and how much is the outstanding balance. Amortization schedule is presented in a table format stating the amount paid to the interest and the diminishing principal. STEPS IN CONSTRUCTING AN AMORTIZATION SCHEDULE PERIOD PERIODIC INTEREST AMOUNT PAID OUTSTANDING PAYMENTS PRINCIPAL Php 50 000 1 Php 4875.20 Php 1250 Php 5825.20 Php 44 174.80 2 Php 4875.20 3 Php 4875.20 4 Php 4875.20 5 Php 4875.20 6 Php 4875.20 7 Php 4875.20 8 Php 4875.20 9 Php 4875.20 10 Php 4875.20 11 Php 4875.20 12 Php 4875.20 ACTIVITY NO. 4 1. Dexter borrows a Php 50 000 that bears interest at 6% compounded annually for 2 years. Find the future value of the loan and construct an amortization schedule. 2. Jimmy borrows a certain amount that bears interest at 4% compounded quarterly for 4 years. Find the original value of the loan.

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