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Borrowing.
Borrowing.
Loans and Loan Repayment.
Loans and Loan Repayment.
A loan is a sum of money borrowed from banks or other financial institutions by one or more people or businesses to manage their finances in the face of planned or unplanned events. The borrower incurs a debt by doing so, which he must repay with interest and within a certain time frame.
The process of repaying money that has been borrowed from a lender is known as repayment. Typically, funds are returned via regular payments that include both principal and interest.
Several Regular Payments
There are many types of several regular repayment plans for loans, one example being annuities.
Annuity: Definition and Sample problem with solutions
These regular, equal deposits or payments made at equal intervals are referred to as annuities. It is a tool for investing that allows money to grow and will pay out a set amount of money at the end of the annuity period.
The word annuity comes from the medieval Latin word “annuitas”, meaning yearly or year.
Annuity Formula:
PN is the balance in the account after N years.
d is the regular deposit (the amount you deposit each year, each month, etc.)
r is the annual interest rate in decimal form.
k is the number of compounding periods in one year.
If the compounding frequency is not explicitly stated, assume there are the same number of compounds in a year as there are deposits made in a year.
Example 1:
Example 2
Amortization is the process of repaying a debt or loan in equal installments over time. A portion of the loan's principal and interest are funded by the individual's payment. As time goes on, less of the payments are made for interest and more are made for principal.
Amortization Schedule is made through the use of an amortization calculator. This is a table which shows the periodic payment made, the principal, interest, and balance at the end of a certain period.
Example 1:
Draw up a loan schedule for a loan of PHP 1,000.00 which is to be repaid over a period of 5 years with equal annual payments at the end of each year. The interest rate is 7.5% per annum.
Step 1: Prepare the table with the indicated column headings and rows.
Period
Periodic Payment
Interest Payment
Principal Repayment
Outstanding Principal
Step 2: Place the original debt and the periodic payments.
Step 3: Get the interest payment for the first period:
(1,000)(0.075) = 75,
Subtract this from the regular payment to get the principal repayment for the first period:
247.16 - 75 = 172.16
Finally, deduct this from the outstanding principal to get the outstanding principal at the end of the period:
1,000 - 172.16 = 827.84
Step 4: Repeat step 3 for the other rows to get the following:
The final outstanding balance does not equal 0 as there are rounding errors. The annual payment is rounded to two decimal places as is the interest and repayment components and the outstanding balance. Had we used the full figure, the outstanding balance at the end would equal 0.
Multiple Debts and/or Payments
In many financial transactions, one set of debts must be replaced with another set of debts that are due at different times. Wherein, it is likely that the initial values of obligations quoted will differ from those anticipated under current rates.
Multiple Debt sample problems with solutions and questions for further understanding.
Example 1:
To settle a current debt your company has agreed to make payments of $10,000, 3 months from now and $15,000, 9 months from now. When the first payment becomes due, the company finds itself short of cash and enters into negotiation with the creditor. Eventually the creditor agrees that if the company makes a partial payment of $4,000 at the 3 month point, the balance must be paid at the 6 month point.
Solution:
Both debtor and creditor agree that the six month point will be the FOCAL DATE for calculations and that the payments will be valued using 9% simple interest. The two old payments are replaced by two new payments, with the second new payment, unknown, shown as x.
All values are compared at the focal date.
Each dollar value is “moved” to the agreed focal date, and an EQUATION OF VALUE is set up to balance the values of old payments and new payments at the FOCAL DATE.
Credit Cards.
Credit Cards.
A credit card is a type of payment card that is given to users (cardholders) to enable them to pay a merchant for goods and services on the basis of the cardholder's promise to pay the card issuer for those amounts in addition to any other agreed-upon fees.
A credit card is a type of payment card that is given to users (cardholders) to enable them to pay a merchant for goods and services on the basis of the cardholder's promise to pay the card issuer for those amounts in addition to any other agreed-upon fees.
The cardholder is given a line of credit and a revolving account by the card issuer, usually a bank. From this line of credit, the cardholder can borrow money to pay a merchant or get a cash advance.
The cardholder is given a line of credit and a revolving account by the card issuer, usually a bank. From this line of credit, the cardholder can borrow money to pay a merchant or get a cash advance.
Terminologies to remember for Credit Cards
The following are the terms you will hear when creating a credit card:
Annual Fee is a yearly charge similar to a membership fee.
Minimum payment is the minimum amount you are required to pay each month.
Finance Charge is the interest you pay on the money you owe the credit card company. This may include other fees.
Annual Percentage rate (APR) is the yearly percentage rate of the finance charge. A fixed APR will normally offer the best value than a variable APR.
Grace period is the period starting from when you make a purchase up to when the credit card company begins charging you interest for that purchase (usually about 25 days).
Credit Card Safety
Crimes can also happen through your credit cards, hence, Banks, both international and domestic, stress the importance of ensuring that customers are given adequate measures to protect their information. Some include the following:
Sign your card as soon as you receive it.
Do not throw out your credit card statement without first shredding them.
Never give your credit card number over the phone unless you initiated the call.
Make sure that you get your card back after you make a purchase.
Always keep a list of your credit cards, credit card numbers, and hotline numbers in case your card is stolen or lost.
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