Getting a Loan - The Homer Fund

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Loan Rates, Terms, and FeesStudy ObjectivesUnderline/highlight theanswers to these questionsas you read:1. How does the monthlyloan payment changeover the life of the loan?2. How do the interest rate,term, down payment,and fees affect the costof a loan?3. What is a payment factortable?When you borrow money, the lender charges you for using thefunds (interest). Usually, the cost of borrowing the money is paid forin small amounts over the life of the loan. Every monthly paymentincludes repayment of some of the borrowed amount (principal)and some of the cost of borrowing the money (interest).Monthly payment = Principal payment + InterestWhen you start to repay a loan, your monthly payments aremostly the interest and a small amount of the principal, becauseinterest is repaid first. Throughout the life of a loan, a greaterpercentage of your monthly payments become principal andless is interest.PrincipalInterestLife of Loan20
There are several factors that affect the cost of credit and the monthly payment on aloan. These variables are interest rate, terms, down payment, and fees. Review thefollowing examples to see how the cost of credit can change.The higher the interest rate, the greater the cost of the credit.Interest rate 8% 14%Loan amount $3,000 $3,000Number of monthly payments 48 48Monthly payment $73.24 $81.98Total amount of payment $3,515.46 $3,935.01Cost of credit $515.46 $935.01Cost of CreditThe longer the term of the loan, the lower the monthly payment but the greaterthe cost of the credit.InterestNumber of monthly payments 36 60Loan amount $3,000 $3,000Interest rate 12% 12%Monthly payment $99.64 $66.73Total amount of payments $3,587.15 $4,004.00Cost of credit $587.15 $1,004.00Cost of CreditThe higher the down payment, the lower the loan amount and the cost of the credit.TermDown payment 0% = $0 15% = $450Purchase price $3,000 $3,000Loan amount $3,000 $2,550Interest rate 12% 12%Number of monthly payments 48 48Monthly payment $79.00 $67.15Total amount of payments $3,792.07 $3,223.26Cost of credit $792.07 $673.26Cost of CreditThe higher the loan fees, the higher the cost of the credit.Down PaymentLoan fees $0 = 0% $100 = 3.3%Loan amount $3,000 $3,000Net loan proceeds $3,000 $2,900($3,000 – $100)Interest rate 12% 12%Number of monthly payments 48 48Monthly payment $79 $79Total amount of payments $3,792.07 $3,792.07Cost of credit $792.07 $892.07Cost of CreditFees21
Page 13: Evaluating a Loan Application Exerc
Page 16 and 17: Study ObjectivesUnderline/highlight
Page 18 and 19: SELF-ASSESSMENT 41. To complete a l
Page 20 and 21: applicant is amassing credit from a
Page 24 and 25: Payment Factor TableYou can calcula
Page 26 and 27: Personally Evaluating the Deal Exer
Page 28 and 29: Study ObjectivesUnderline/highlight
Page 30 and 31: InsuranceWhen you take out a loan t
Page 32 and 33: SELF-ASSESSMENT 81. What type of in
Page 34 and 35: Knowledge Review32To review the con
Page 36 and 37: Juan is applying for a $1,000 loan
Page 38 and 39: Personally Evaluating the Deal Exer
Page 40 and 41: GlossaryAccount statement - This is
Page 42 and 43: Forgery - When a person purposefull
Page 44: 42Notes
Page 48: 4000 Wisconsin Avenue, NWNorth Towe

Getting a Loan - The Homer Fund

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