3.1-3.4 Review Financial Algebra

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What is an installment plan?

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An installment plan is a payment method where a buyer pays for a product or service in multiple smaller payments over time, rather than paying the full amount upfront.

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How do you calculate the down payment on an installment plan?

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To calculate the down payment, multiply the total cost of the item by the down payment percentage. For example, for a $1,455 drum set with a 15% down payment: $1,455 x 0.15 = $218.25.

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What is the formula to calculate total monthly payments in an installment plan?

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Total monthly payments = Monthly payment amount x Number of payments. For example, if the monthly payment is $80.78 for 18 months: $80.78 x 18 = $1,454.04.

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How do you find the total cost of an item purchased on an installment plan?

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Total cost = Down payment + Total monthly payments. For example, if the down payment is $218.25 and total monthly payments are $1,454.04, then total cost = $218.25 + $1,454.04 = $1,672.29.

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What is APR (Annual Percentage Rate)?

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APR is the annual rate charged for borrowing or earned through an investment, expressed as a percentage. It includes any fees or additional costs associated with the transaction.

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How do you calculate the APR for a payday loan?

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APR = (Interest / Loan Amount) x (365 / Loan Term in days) x 100. For example, for a $350 loan with $75 interest over 20 days: APR = ($75 / $350) x (365 / 20) x 100 = 391%.

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What is the formula to calculate monthly payments for a loan?

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Monthly payment = (Loan Amount x Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^-Number of Payments).

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How do you convert an APR to a monthly interest rate?

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Monthly interest rate = APR / 12. For example, if the APR is 3.15%, the monthly interest rate is 3.15% / 12 = 0.2625%.

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What is the significance of the loan term in calculating monthly payments?

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The loan term affects the monthly payment amount; a longer term generally results in lower monthly payments but higher total interest paid.

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What is the total amount paid over the life of a loan?

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Total amount paid = Monthly payment x Number of payments. For example, if the monthly payment is $204.03 for a 3-year loan (36 months): Total amount paid = $204.03 x 36 = $7,344.08.