General

Mathematics
LAS, Week 6 – Quarter 2
 I. Business and Consumer Loans

Content Standards: The learner demonstrates an understanding

of the basic concepts of business and
consumer loans.

Performance Standards: The learner can decide wisely on the

appropriateness of business or consumer
loan and its proper utilization.

Most Essential Learning Competency:

Illustrates business and consumer loans
Distinguishes between business and consumer loans
Solves problems involving business and consumer loans
(amortization, mortgage)

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II. CONCEPT NOTES
BUSINESS AND CONSUMER LOAN

Consumer Loans are loans given to individuals for personal

or family purpose while business loans are loans for businesses.
Both consumer and business loans may require a collateral. The
collateral for both loans may be a real estate or other investments.
Consumer loans do not usually require a guarantor, but business
loans require the business owners to sign as guarantors. The term
of the business loan is generally shorter than the consumer loan
and the interest for the business loan is usually higher than that
of the consumer loan.

Because of this, consumer and business loans will then differ in

the documents required in securing the loan. These are mainly but
not limited to the following:

1. Collateral
Business loans usually require collateral, or technically
called, assets. Therefore, they may include real estate,
equipment, furniture and fixtures, inventory, or investments
made by the business. Some banks may even require
business owners to make personal assets available for
security.
2. Guarantor
Consumer loans sometimes seek guarantors. A guarantor is
a person who will guarantee the borrower’s payment of the loan.
In the event loan was not paid on schedule by the borrower, the
bank may pursue the guarantor for payment of the loan.
3. Documentation
Consumer loans often ask for pay slips, bills, or income tax
return (ITR). For business loans, credit reports and financial
statements (FS) of the business will be accessed. Tax returns
(WHT 2307) and copies of contracts with vendors, suppliers,
and customers may be supplied to provide more solid
paperwork.

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 4. Terms
Due to size or value of loans, business loans are generally
shorter and have higher interest rates than those of
consumer loans. Terms are greatly dependent on the capacity
of the borrower to pay. Stretched terms would receive higher
interest, whereas more attractive assets may grant lower
interest.
To summarize the characteristics of both loans:
Business loan Consumer loan
1. Collateral Real estate, equipment, Real estate
furniture, inventory, or
personal assets of the
business owners
2. Guarantor The business owners Sometimes require a
must sign the loan as guarantor
guarantors
3. Requires credit reports, Requires credit
Documentation tax returns, and the last report or tax return
three years of financial
statements
4. Terms Shorter and includes Longer than
higher interest rate business loan
5. Follow – up Annual reviews of the No further follow –
relationship are often up one the loan is
conducted released

Loans can be repaid through a one-time payment or several

regular payments.
Regular payments use the concept of annuity. A payment
scheme wherein the loan is repaid through regular equal payments
is called an amortization. This may be explained clearly through
the use of an amortization schedule table.

Through this table, one is able to monitor the amounts every

year- especially how interest is incurred after every year, as well as
how the outstanding principal balance is reduced after every
compounding period. This table is called the amortization
schedule table.
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 PROBLEMS INVOLVING BUSINESS AND CONSUMER
LOANS (AMORTIZATION, MORTGAGE)

The following formulas will be used in solving amortization and

mortgage:

Down payment = (down payment rate) * (cash price)

Amount of the loan = (cash price) – (down payment)

Definition of Terms
• Amortization Method – method of paying a loan (principal
and interest) on installment basis, usually of equal amounts
at regular intervals.
• Mortgage- A business or consumer loan, secured by a
collateral, that the borrower is obliged to pay at specified
terms.
• Chattel Mortgage – a mortgage on movable property.
• Outstanding balance – any remaining debt at a specified
time.

EXAMPLE 1. (Activity 6.3)

Mr. and Mrs. Banal purchased a house and lot worth
P4,000,000. They paid a down payment of P800,000. They plan
to amortize the loan of P3,200,000 by paying monthly for 20
years. The interest rate is 12% convertible monthly.
a. How much is the monthly payment?
b. What is the total interest paid?
c. What are the principal and interest components of
the 51st payment?

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SOLUTION:

There are 240 payments of P35,234.76.

The total payment is 240 × P35, 234.76 = P8, 456, 342.40.
The principal is only P3,200,000.

Interest Amount = (Total Payments) ? (Principal)

= 8, 456, 342.40 ? 3, 200, 000 = 5, 256, 342.40

The interest amount is P5,256,342.40.

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Find: principal and interest components of the 51st payment

The 51st payment of P35,234.76 is partly used to pay for the

principal, and partly to pay for the interest.

Step 1: Get the outstanding balance after the 50th payment

(the balance after the 50th payment is what the 51st payment
will be for).

Since 50 payments have been paid already, there will be 190

remaining payments.

The outstanding balance after the 50th payment is:

Step 2: After the 50th payment, the outstanding balance is

P2,991,477.63.
The remaining portion of the 51st payment is the principal
component, denoted by 𝑃𝑅51 , is:

𝑃𝑅51 = 𝑅 − 𝐼50 = 35,234.76 − 29,914.78 = 5,319.98

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 Since the interest rate per period is j = 0.01, then the
remaining balance of P2,991,477.63 will be charged an interest of
the 51st payment of P35,234.76 will be used to pay for this
interest. Thus, the interest component of the 51st payment is
P29,914.78.

Thus, for the 51st payment, the part that goes to pay the
interest is P29,914.78 and the part that goes to pay the principal
is P5,319.98.

EXAMPLE 2.

A loan of P200,000 is to be repaid in full after 3 years. If

the interest rate is 8% per annum. How much should be paid
after 3 years?

SOLUTION:

F = (1 + j)n = 100, 000, (1 + 0.08)3 = 251, 942.40

EXAMPLE 3.
For a purchase of a house and lot worth P3,800,000, the
bank requires 20% down payment, find the mortgaged amount.

SOLUTION:

Down payment = (down payment rate) * (cash price)

= (0.20)(3,800,000) = 760,000
Amount of the loan = (cash price) – (down payment)
= 3,800,000 – 760,000 = P3,040,000

EXAMPLE 4.

A car dealer offers a 15% down payment for the purchase a

car. How much is the mortgaged amount if the cash value of
the car is P1,500,000?

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 SOLUTION:

Down payment = (down payment rate) * (cash price)

= (0.15) (1,500,000) = 225,000

Amount of the loan = (cash price) – (down payment)

= 1,500,000 – 225,000 = P1,275,000

EXAMPLE 5.

If a condominium is purchased for P5,700,000 and the bank

requires 30% down payment, how much is the mortgaged
amount?

SOLUTION:

Down payment = (down payment rate) * (cash price)

= (0.30)(5,700,000) = 1,710,000

Amount of the loan = (cash price) – (down payment)

= 5,700,000– 1,710,000= P3,990,000

EXAMPLE 6.

A newly married couple decided to buy a brand-new car. The

net amount of the loan is P500,000. They
plan to amortize the loan in monthly installments for 3 years. If
money is worth 12% convertible monthly,
(a) how much is the monthly installment?

SOLUTION:

(b) How much is the outstanding balance after the second

payment?
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SOLUTION:

(c) How much of the third payment goes to pay the interest
and the principal?

SOLUTION:

Example 7:

Adam obtained a loan of 50,000 pesos for the tuition fee of

her son. She has to repay the loan by equal payments at the end
of every six months for 3 years at 10% interest compounded semi-
annually. Find the periodic payment.

The gradual extinction of a loan over

SOLUTION:
a period of time by means of a sequence
of regular or equal payments as to
PV = 50,000 pesos
principal and interest due at the end of
r = 10% equal intervals of time is known as
amortization. In the example, we can say
t = 3 years
𝑟 10%
that the loan of 50,000 pesos that is
𝑖=𝑘= = 0.05 amortized by equal periodic or
2
k=2 installments of 9,850.87 at equal
n = 3(2) = 6 intervals end of every six months,
becomes the presents value of simple
A=?
annuity.
When the loan is gradually repaid,
the construction of an amortization
schedule is very important for both the
lender and the lendee. They will both see
how much of each payment goes to the
interest and how much is applied to the
reducing principal.
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 The Amortization schedules

Period Periodic Interest at 10% Amount repaid Outstanding

payment at the due at the end to the principal principal at the
end of every 6 of every 6 at the end of end of every 6
months months every 6 months months
(a) (b) (c) (d) (e)
0 50,000
1 9850.87 2500 7350.87 42649.13
2 9850.87 2132.46 7718.41 34930.72
3 9850.87 1746.54 8104.33 26826.39
4 9850.87 1341.31 8509.56 18316.84
5 9850.87 915.84 8935.03 9381.81
6 9850.87 469.09 9381.81 0.00
Total 59105.22 9105.24 50,000

The amortization schedule can be prepared as follows:

1. Calculate the periodic payment. Complete column B with

this periodic payment.
2. To fill up column C, calculate interest using the
formula: I = Prt

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 3. To fill up column D, subtract column C from column B.

Column D: 9850.87 – 2500.00 = 7350.87 for row 1

Column D: 9850.87 – 2132.46 = 7718.41 for row 2
Column D: 9850.87 – 1746.54 = 8104.33 for row 3
Column D: 9850.87 – 1341.31 = 8509.56 for row 4
Column D: 9850.87 – 915.84 = 8935.03 for row 5
Column D: 9850.87 – 469.09 = 9381.81 for row 6

4. To fill up column E, subtract column D from column E as

Follows:

Column E: 50000 – 7350.87 = 42649.13

Column E: 42649.13 – 7718.41 = 34930.72
Column E: 34930.72 – 8104.33 = 26826.39
Column E: 26826.39 – 8509.56 = 18316.84
Column E: 18316.84 – 8935.03 = 9381.81
Column E: 9381.81 – 9381.81 = 0.00

Note: 1. The amount of the original loan is equal to the total

repayments on the principal
2. the outstanding principal is equal to 0 at the end of the
term.
The following formulas will be used in solving amortization
and mortgage:

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Consumer Loans are loans given to individuals for personal or
family purpose while business loans are loans for businesses.
Business loan Consumer loan
1. Collateral Real estate, equipment, Real estate
furniture, inventory, or
personal assets of the
business owners
2. Guarantor The business owners Sometimes
must sign the loan as require a
guarantors guarantor
3. Documentation Requires credit reports, Requires credit
tax returns, and the report or tax
last three years of return
financial statements
4. Terms Shorter and includes Longer than
higher interest rate business loan
5. Follow – up Annual reviews of the No further follow
relationships are often – up one the loan
conducted is released

III. LEARNING TASKS

Follow the directions of each given task. Read and
understand each item carefully and answer honestly.

Learning Task 1
Directions: Identify whether the following illustrates a business
loan or a consumer loan. Write BL if the situation shows business
loan and CL if it states a consumer loan.

1. Mr. Manzano plans to have a barbershop. He wants to borrow

some money from the bank for him to buy the equipment and
furniture for the barbershop.
2. Margareth is planning to take up Engineering as her college
course. To support her, Mr. And Mrs. Alvar, her parents, borrowed
money from the bank for her financial needs.

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3. Because of his love for our country, Mr. Razo always conduct an
Independence Day presentation to his barangay. But because of
COVID - 19, he got a problem with his business and need extra
money to finance his advocacy. He realized that he needs to borrow
money from the bank to continue his annual Independence Day
activity.
4. Mr. Bonifacio wants to have some improvements on their 100-
year old ancestral house in Sariaya, Quezon which was also
identified as a historical house in the province. He wants to repair
the ceiling in preparation for the rainy season. He will borrow some
money from the bank to finance this plan.
5. Mr. Santiago owns the Kakanin food cart business. He wants to
out another food cart on a new mall in Tayabas City. He decided
to have a loan amounting to ₱100,000.00 to establish the new
business.
6. In preparation for the online learning of her children due to the
COVID-19 pandemic, Mrs. Castro decided to buy laptops for them
and got an internet connection. But because of short in budget,
she needed to borrow money amounting to ₱80,000.00 for this
school preparation.
7. Instead of working as a Manager in a certain company, Mr. De
Guzman decided to leave his job and put up an internet cafe
instead. To finance his business, he borrowed money from a
Kabayan Bank.
8. Because Anna believed that Filipinos are truly honest, she
decided to put up an Honesty Bookstore in front of Excellence
National High School. Everyone can get what they need and pay
for it without anyone in the cashier. But before she can own this
shop, she borrowed ₱1,000,000.00 from the bank to finance the
expenses in putting up this bookstore.
9. Yzzyr excelled in Science and even won various competitions
relative to Applied Science. At the back of her achievements are
her supportive parents. Before she invented the COVID-19
scanning robot, her parents need to finance her project with a big
amount. Because her parents believed in her, they even borrowed
money from the bank just for her to finish her invention.
10. Xandria really loves her family. They supported her in all of her
endeavors. As return of gratitude, she promised them that they will
make a tour of great places in the world. To realize her promise,
and to help her finance their tour, she applied for a personal loan
amounting to ₱200,000.00 to Bank XY.

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Learning Task 2
Multiple Choice: Choose the letter of the letter of the correct
answer. Show all necessary solutions.
1. A business or consumer loan, secured by a collateral, that the
borrower is obliged to pay at specified terms.
A. mortgage B. lending C. salary loan D. capital loan
2. Roan has a computer shop. She owns 6 computers. She
decided to borrow some money from the bank to buy 10 more
computers. What kind of loan will she avail?
A. business loan B. consumer loan C. stock loan D. Lending
3.Jobert had to apply a loan for expansion of his sari-sari store.
What kind of loan will he avail?
A. business loan B. consumer loan C. stock loan D. Lending
4. Rachel decided to purchase a condominium unit near his
workplace. He got a loan worth P2,000,000. What type of loan he
needs to apply?
A. business loan B. consumer loan C. stock loan D. Lending
5. Which of the following is a characteristics of consumer loan?
A. Always needs a guarantor. C. Has shorter terms
B. Does not require collateral. D. Has longer terms
6. Which of the following refers to a payment made in regular
terms that uses the concept of annuity?
A. accrued interest C. lumpsum schedule
B. amortization schedule table D. payment schedule table
7. What do we call a mortgage in the movable property?
A. basic mortgage C. fixed mortgage
B. chattel mortgage D. moving mortgage
8. What is the formula to be used to solve the future value or
amount of simple ordinary annuity?

A. C.

B. D.

9. What do you call a debt provided by one entity to another

entity at an agreed interest rate?
A. Bonds B. Capital C. Loans D. Stocks
10. Ms Rosal bought a car. After paying the down payment, the
amount of the loan is P400,000 with an interest rate of 9%
compounded monthly. The term of the loan is 3 years. How much
is the monthly payment?
A. P12,719.89 B. P11,390.03 C. P10,345.90 D. P 9, 719.89
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Learning Task 3

Directions: Choose the letter of the letter of the correct answer.

Show all necessary solutions.

1. What do you call the loan that intends to spend for personal,
family or household purposes?
A. business loan B. collateral C. consumer loan D. mortgage
2. What do you call the loan that is usually made to fund a
company’s operating expenses and other financial needs?
A. business loan B. collateral C. consumer loan D. mortgage
3. What do you call a person who guarantees to pay for someone
else’s financial obligation if the borrowers fail to do so?
A. amortization B. collateral C. guarantor D. mortgage
4. Which of the following is an example of a business loan?
A. auto loans C. mezzanine financing
B. credit cards D. mortgages
5. Which of the following is an example of a consumer loan?
A. asset-based financing C. invoice financing
B. car loans D. micro loans
6. Which of the following statement/s about the interest rate of
consumer and business loans are correct?
A. The business loan has higher interest than a consumer loan.
B. Consumer loan has a higher interest rate than a business loan.
C. Consumer and business loans are always equal in interest
rates.
D. The business loan has no interest rate, unlike consumer loan.
7. Which of the following statement about terms of payment for
consumer and business loans is correct?
A. The business loan has a longer term of payment than a
consumer loan.
B. Consumer loan has a longer term of payment than a business
loan.
C. Consumer and business loans are always equal in terms of
payment.
D. Consumer loan has no specific term of payment, unlike a
business loan.
8. Which of the following is not a required document if an
employee is applying for a consumer loan?
A. certificate of employment C. credit report
B. company’s financial statement D. employee’s pay slip

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For 9-15. Identify the following situations and write a if it is a
business loan, b if the situation is a consumer loan, c if the
situation is both a business loan and a consumer loan, or d if the
situation is neither a business loan nor a consumer loan.

____9. Mr. Enriquez owns a lemon juice cart business. He wants to

put another juice cart on a new mall in the other city. He decided
to have a loan to establish a new business.

____10. Mr. Gozon wants to have another branch of his

barbershop. He decided to apply for a loan amounting to
₱100,000.00 that he can use to pay for the rentals of the new
branch.

____11. Andrew has a computer shop. He owns 10 computers. He

decided to borrow some money from the bank to buy 10 more
computers.

____12. Ann decided to take her family for a vacation in Palawan,

Cebu and Bohol. To cover the expenses, she decided to apply for a
loan amounting to ₱100,000.00

____13. Mrs. Amor runs a recruitment agency. She wants to put

up another office in the province. She applied for a loan in a bank
worth ₱2,000,000.00

____14. Mr. Agoncillo renovated his house for Php 90,000. This was
made possible because of an approved loan worth ₱85,000.00

____15. Mark decided to apply for a car loan since his work is very
far from his residence. He got a car loan worth ₱1,500,000.00

IV. REFLECTION

Direction: Write your response in at least 5 sentences.

I have learned that

________________________________________________________________
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V. REFERENCES

Oronce, Orlando A. 2017. General Mathematics

Quipper Limited. 2020. Quipper. 09 04. Accessed July 3, 2020.

https://link.quipper.com/en/organizations/5468ba0b2294ee085c000098/c
urriculum#curriculum.

Commission on Higher Education. 2016. Chapter 9: Basic Concepts on

Loans .In Teaching Guide for Senior High School General Mathematics Core
Subject, by Commission on Higher Education, 237-242. Quezon City:
Commission on Higher Education.

Department of Education. 2016. Chapter 9: Basic Concepts on Loans " In

General Mathematics Learner's Material, by Department of Education, 253-
268. Pasig: Department of Education.

https:

Compiled by: GLORIFEL B. SAREÑO

MT-1, Math
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