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TOPIC: BUSINESS & CONSUMER LOANS
Definition of terms:
Business Loan- money lent specifically for a business purpose. It may be used to start a business or to have a business
expansion.
Consumer Loan- money lent to an individual for personal or family purpose
Collateral- assets used to secure the loan. It may be a real estate or other investments.
Term of the Loan- time to pay the entire loan
Amortization Method- method of paying a loan (principal and interest) on instalment basis, usually of equal amounts at
regular intervals
Mortgage- a loan secured by a collateral, that the borrower is obliged to pay at specified terms.
Chattel Mortgage-a mortgage on a movable property.
Outstanding Balance- any remaining debt at a specified time
Prospective Method- one method to compute the outstanding balance by getting the present value of all remaining
payments.
Formula:
A.)Amount of loan after t years:
F= P (1+i)n
B.)Total Amount of Interest:
Total Interest = Total amount paid – amount of mortgage (I = F-P)
C.)Amount of the loan/mortgage (if with downpayment):
Step1. Downpaymet= downpayment rate x cash price
Step2. Amount of the loan or mortgage = cash price – downpayment
D.)Monthly payment:
𝑃
𝑅 = 1−(1+𝑖) −𝑛
( 𝑖
)
E.)Outstanding Balance (Using Prospective method)R
−(𝑛−𝑘)
1−(1+𝑖)
Bk= 𝑅 𝑖
Where : Bk----- outstanding balance
: k-------number of payments made
F.)Principal and Interest Component of the nthpayment
−(𝑛−𝑘)
1−(1+𝑖)
Step1. Get the outstanding balance after the last payment made using the formula Bk= 𝑅 𝑖
Step2. Compute for the interest amount for the balance (B) computed in step1 using the formula
Interest = (i x B);
Step3. Compute for the Principal component using the formula
Principal Component = Amortization – Interest (PR=R-I)
Example:
1. Mr. Garcia borrowed ₱1,000,000 for the expansion of his business (business loan). The effective rate of interest is 7%.
The loan is to be repaid in full after 1 year. How much is to be paid after 1 year?
Solution: Formula A.
2. A person borrowed ₱1,200,000 for the purchase of a car (chattel mortgage). If his monthly payment is ₱31,000 on a
five-year mortgage, find the total amount of interest.
Solution: Formula B
3. If a house is sold for ₱3,000,000 and the bank requires a 20% downpayment, find the amount of the mortgage.
Solution: Formula C
4. Ms. Rosal bought a car. After paying the downpayment, the amount of the loan is ₱400,000 with an interest rate of 9%
compounded monthly. The term of the loan is 3 years. How much is the monthly payment?
Solution: Formula D
5. Mrs Se borrowed some money from a bank that offers an interest rate of 12% compounded monthly. His monthly
amortization for 5 years is ₱11,122.22, how much is the outstanding balance after the 12th payment?
Solution: Formula E
6. Mr. and Mrs. Banal purchased a house and lot worth ₱4,000,000. They paid a downpayment of ₱ 800,000. They plan
to amortize the loan of ₱ 3,200,000 by paying monthly for 20 years. The interest rate is 12% convertible monthly.
a. How much is the monthly payment? Formula D
b. What is the total interest paid? Formula B
c. What are the principal and interest components of the 51st payment? Formula F
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PERFORMANCE TASK:
Watch the video lesson in WOW MATH, with the topic “Business Loans and Consumer Loans & Solving Problems
related to it”. Then answer the following problems below. Write it on 1 whole sheet of paper.
1. A business loan of ₱1,000,000 is to be repaid in full after 3 years. If the interest rate is 7% per annum, how much
should be paid after 3 years?
2. For the purchase of an SUV worth ₱ 1,200,000, the bank requires a minimum amount of 20% down payment. What is
the mortgaged amount?
3. A family obtained a ₱ 4,500,000 mortgage. If the monthly payment is ₱ 50,000 for 12 years, how much is the total
interest paid?
4. A consumer loan worth ₱ 75,000 is to be repaid in 18 months at 12% convertible monthly. How much is the monthly
payment?
5. Ms. Lachica got a car loan that requires a monthly payment of ₱ 13,000 for 5 years. She plans to pay off the loan after
paying for 3 years. How much of the 13th payment goes to the principal if the interest rate is 10% compounded monthly?
