Chapter 7: Geospatial Database CHAPTER 7 Development of a ...
Chapter 7
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Transcript of Chapter 7
Learning Objectives (part 1 of 3)
Describe the different types of installment loans
Compute the monthly payment for an installment loan
Explain why a monthly payment is not one-twelfth of an annual payment
Construct a loan amortization table and explain the two reasons why it is important
Learning Objectives (part 2 of 3)
Show the impact on the amortization table of adding extra principal to a payment
Explain how an add-on rate loan works
Construct an amortization table for an add-on rate loan
Identify the lenders who most commonly provide installment loans
Learning Objectives (part 3 of 3)
Evaluate whether it is better to take out an auto loan or a home equity loan to buy an auto
Discuss what happens when you default on a loan with collateral
List the protections a consumer has from a debt collector
Discuss the two primary chapters for declaring bankruptcy: 7 and 13
Describe how bankruptcy works under each chapter
Types of Installment Loans Auto Loan
New or Used Home Improvement Loan Marine loan Signature Secured Personal Loan
Household goods Certificate of Deposit
Computation of Monthly Payment
Payment x PVIFA = Loan Amount Payment = the payment made each
period PVIFA = the present value interest factor
for the annuity based on the number of payments and the interest rate of the loan
Loan Amount = Amount initially borrowed Payment = Loan Amount / PVIFA
Example #1 (annual payments)
Andy wants to take out a $10,000 home improvement loan. His local bank indicates he can have a five-year loan at an 8 percent interest rate with annual payments. What would his annual payment be?
Answer: $10,000 / 3.9927 = $2,504.56
Example #2 (annual payments)
Andy wants to take out a $10,000 home improvement loan. His local bank indicates he can have a five-year loan at an 8 percent interest rate with monthly payments. What would his monthly payment be?
Answer: $10,000 / 49.3169 = $202.77
Relationship of monthly payment to annual payment
Monthly payment is less than one-twelth the annual payment because the monthly payment allows a faster pay down of principal, which allows lower interest charges over time.
Loan Amortization Table Two reasons why it is important
Indicates how much would be owed if loan were paid off at any point in time (lenders occasionally miscalculate this number)
Indicates how much of each payment is interest, in case the interest on the loan is tax deductible.
Example of a Loan Amortization Table
Loan = $1,000, Term = 12 monthsInterest Rate = 12 percent
Mo. Beginning PMT Interest Repay. End# of Month of Prin. Of Month1 $1,000.00 $88.85 $10.00 $78.85 $921.152 $921.15 $88.85 $9.21 $79.64 $841.53 $841.51 $88.85 $8.42 $80.43 $761.08
Impact of Adding Money to a Payment
Loan terms same as previous exampleAdd $100 to first payment
Mo. Beginning PMT Interest Repay. End# of Month of Prin. Of Month1 $1,000.00 $188.85 $10.00 $178.85 $821.152 $821.15 $88.85 $8.21 $80.64 $741.513 $741.51 $88.85 $7.41 $81.44 $659.07
How an add-on rate loan works
Total Interest Due = Amount Borrowed x add-on rate x Maturity in Years
Monthly Payment = (Amount Borrowed + Interest) / Maturity in months
Amortization of interest based on Rule of 78
Example
$1,000 at 6% add-on rate for one year
Interest = $1,000 x .06 x 1 year = $60
Monthly payment = ($1,000 + $60) / 12 months = $88.33
Amortization TableMo. Beginning PMT Interest Repay. End# of Month of Prin. Of Month1 $1,000.00 $88.33 $9.23 $79.10
$920.902 $920.90 $88.33 $8.46 $79.87
$841.033 $841.03 $88.33 $7.69 $80.64
$760.39
Lenders of Installment Loans Commercial banks Mutual Savings banks Savings & Loans Credit Unions Consumer Finance Company
Auto Loan vs. Home Equity Loan to buy an auto Higher fees for a home equity loan Interest deductible on home equity
loan With auto loan, loan is due if auto sold If pay off loan early enough, auto loan
may be cheaper despite non-deductibility of interest
With home loan, lose home if default
Loan defaults Always better to try to work out an
adjustment directly with lender After default, lender may seize
property pledged as collateral If collateral sold, borrower still
owes if sale net proceeds are insufficient to cover the principal due
Protections from a debt collector
Defined by the Fair Debt Collection Practices Act
Contact only between 8 am and 9 pm
No contact at work if know employer disapproves
May not harass, oppress, or abuse, and may not lie
Chapter 7 Bankruptcy Exempt & Nonexempt property Nonexempt is sold & proceeds
turned over to creditors All debt that can be discharged is
so done, Stays on record for 10 years