Understanding Installment Loans and Interest

The video tutorial covers installment loans, focusing on calculating final payments and interest savings. It introduces key formulas for interest and final payment calculations, followed by a detailed example using an electric scooter loan. The tutorial concludes with additional practice problems to reinforce the concepts.

What is an installment loan?

• A loan that is paid off in one lump sum

• A loan that is paid off in regular installments over time

• A loan that is only for purchasing vehicles

• A loan that does not accrue interest

Why might someone choose to pay off an installment loan early?

• To extend the loan term

• To increase the total interest paid

• To avoid monthly payments

• To reduce the total interest paid

What is the final payment in an installment loan?

• The penalty for early payoff

• The previous balance plus the current month's interest

• The last regular installment

• The total amount of the loan

How do you calculate the interest for a final payment?

• Principal times rate times time

• Principal divided by rate

• Rate times time divided by principal

• Principal plus rate plus time

In the example problem, what was the balance after the fourth payment?

• $816.04

• $1,278.72

• $1,200

• $106.56

What was the interest calculated for the final payment in the example?

• $24.20

• $16.04

• $8.16

• $12.00

How much was saved by paying off the loan early in the example?

• $24.20

• $28.28

• $1,278.72

• $106.56

What is the formula to calculate interest saved by early payoff?

• Total payback plus interest

• Final payment minus previous balance

• Total payback minus sum of previous payments and final payment

• Principal times rate times time

What is the purpose of multiplying by 1/12 in the interest formula?

• To increase the interest rate

• To decrease the principal

• To adjust for monthly payments

• To calculate annual interest

What should you do if there is a penalty for early loan payoff?

• Ignore the penalty

• Extend the loan term

• Pay off the loan early regardless

• Consider the penalty before deciding