Solving Problems on Business and Consumer Loans

Objectives:
a.) Illustrate business and consumer loans.
b.) Distinguish between business and consumer loans.
Activity 1 . REVIEW
Based on your knowledge of the previous lessons, try solving the
following problems:
1. How much interest is charged when ₱100,000.00 is borrowed for 6
months at an annual simple interest rate of 12%?

2. Find the maturity value and the compound interest if ₱15,000 is

compounded annually at an interest rate of 3% in 3 years.

3. Rina started to deposit ₱3,000.00 quarterly in a fund that pays 2%

compounded quarterly. How much will be in the fund after 5 years?
Directions: Identify which of the following statements belong to either consumer or
business loans.
1. Maria wants to borrow money from a financing agency for her college education.

2. Mang Pedro would like to improve his auto-repair shop. He went to the bank to
borrow money to finance his plan to buy some equipment.

3. Rico finds it hard to travel to and from his workplace. So, he filed a loan from a bank
for him to purchase a motorcycle.

4. Mr. Ramsy would like to open a computer shop, but he was short of capital. So, he
went to the bank and file for a loan to purchase computers and other equipment.
What is business loan? - Money lent intended for business purposes.

What is consumer loan? -money lent for personal of family purpose.

Questions:
1. What do you understand about the word “loan” or “mortgage”?
_____________________________________________________________
2. Do you think anyone can file for a loan from a bank or any financial
institution? _____________________
3. Enumerate some government institutions or private agencies wherein you can
apply for a mortgage of a house or any vehicle?
________________________________________________________________________
4. Which do you think is more proper to buy a motorcycle, using a straight cash or
using a mortgage? Why?
______________________________________________________________________
5. Do you think it is appropriate to pay an obligation such as a loan or mortgage?
Why?
_______________________________________________________________________
TERMINOLOGIES

Amortization is the process of paying off debt with regular payments made over
time.
Mortgage is a loan from a bank or other financial institutions that help a borrower
purchase a home or a car.
Mortgagor is the one who borrows a mortgage.
Mortgagee is the one who lends a mortgage.
Collaterals are assets that can secure a loan.
Fixed-rate mortgage is a type of mortgage where interest remains constant.
Obligation is what parties may do under a contract or terms of agreement.
Outstanding balance is any remaining debt at a specified time.
Example 1
Mario came from a poor family. His parents have no stable jobs. But due to Mario’s
determination, he excelled and was able to graduate college. After being
permanent for 2 years in his work, Mario dreamt of providing a simple and decent
shelter for his family. He went to the bank and applied for ₱1,000,000.00 loan. The
bank approved his application with the following terms: 10% down payment, 12%
total interest, and must be paid in full after 5 years.
a. How much is his mortgaged amount?
b. How much should he have paid after 5 years?
Solution:
(a) Down payment = (down payment rate) x (amount of loan applied)

(b) Given P = 900,000, j = 0.12, n = 5

F = 𝑃(1+𝑗)𝑛
Example 2
Cathy finished Senior High School in her hometown. She took a TVL strand in dressmaking, However, because of
financial incapacity, she was not able to continue in college. She decided to help her mother in their small business of
dressmaking. Their business increased in production due to her hard work. Subsequently, Cathy decided to venture on a
larger scale and wished to export their Filipiniana-style products. But this would need a bigger capital. So, she decided
to go to a financing institution, Phiram Inc., to borrow ₱500,000.00. If her monthly payment was ₱12,000.00 on a 5-year
mortgage, how much was the total amount of interest?

Solution:
Given P = 500,000, monthly payment = 12,000
Total Amount = (12,000) (12 months) (5 years) = 720,000
Total Amount of Interest = Total Amount – Amount of mortgage
= 720,000 – 500,000 = 220,000
Example 3
During his STEM high school years, Albert was fond of experimenting on RC motors. In his
engineering years in college, he creatively thought of experimenting about perpetual motion
that could provide energy to machines. However, he was short of finances to start this project
which is primarily Filipino-made. AG Resibo Company approached Albert, and offered to lend
him a capital of ₱2,000,000 to be paid in 5 years with 10% monthly interest. Moreover, there is
an outright deduction of 100,000 from his applied loan.
(a) How much is his monthly payment?

Solution:
(a) Given P = 1,900,000 i = 0.10 j = 0.10/12 = .00833;
n = mt = (12)(5) = 60
What’s More
Activity 1.1
1. A business loan of ₱200,000 is to be repaid in full after 2 years. What is the amount
to be paid if the effective rate of interest is 10%? (Hint: F = 𝑃(1+𝑗)𝑛 )

2. Johna purchased a condominium worth ₱3,500,000. However, the bank demands a

10% down payment. How much is the mortgaged amount?

3. A motorcycle seller requires Justo ₱5,000 down payment. How much would be
the mortgaged amount if the motorcycle is sellable at ₱120,000?
Activity 1.2
Solenn decided to venture in an online business and opted to go to a financing
institution to borrow ₱50,000. If her monthly payment is ₱1,500 on a 5-year
mortgage, how much is the total amount of interest?

Activity 1.3
PC Yaw Inc. approached Rudy and offered to lend him a capital for his computer
business amounting to ₱300,000 to be paid in 3 years with 12% monthly interest.
How much would be is his monthly payment?
What I Can Do
1. Create your own or similar real-life situation problem where consumer and
business loans are applied. Conduct a thorough search by looking for any
Philippine bank or institution that offer any loans. Attach the screenshot of
your search. You may create more than one problem as long as letters a-d in
number 2 are presented.

2. In a bond paper, present the problem and write the current interest rate being
charged by your chosen bank or institution. Compute for the following:
(a) Mortgaged Amount (c) Total amount paid
(b) Monthly installment (d) Total amount of interest

Note that your grade will be according to the criteria below: Accuracy of research
data (50%), Accuracy of solution (40%), and Applicability to the current situation
(10%).