business and consumer loans

Page 2: Learning Objectives

• 1. istinguish between business and consumer loans.

• 3. Solve problems on business and consumer loans (amortization and mortgage).

Page 3: Definitions

• Business Loan: Money spent specifically for a business purpose, used to start or expand a business.

• Consumer Lo: Money lent to individuals for personal or family purposes.

• Collateral: Assets used to secure the loan, which may include real estate or other investments.

Page 4: Additional Terms

• Chattel Mortgage: A mortgage on movable property.

• Amortization Method: Method of paying a loan (principal and interest) on an installment basis, usually of equal amounts at regular intervals.

Page 5: Key Terms

• Term of the Loan: Time to pay off the entire loan.

• Outstanding Balance: Any remaining amount at a specific time, due at regular intervals.

Page 6: Differences Between Loan Types

• Consumer Loans: Given to individuals, often require collateral, and do not typically require a guarantor.

• Business Loans: Designed for business purposes, require the business owner to sign as a guarantor. They also usually require submission of a credit report, tax returns, employment certificates, and pay slips for verification.

Page 7: Activity 1

• Scenario: Mr. Agustin plans to borrow money for a barber shop.

  • Decision: BUSINESS LOAN

• Scenario: Mr. and Mrs. Craig borrow money for their son's college education.

  • Decision: CONSUMER LOAN

Page 8: Activity 2

• Scenario: Mr. Alonzo wants to improve his 10-year-old house.

  • Decision: CONSUMER LOAN

• Scenario: Mr. Samson wants to expand his siomai food cart business.

  • Decision: BUSINESS LOAN

Page 9: Activity 3

• Scenario: Ron owns a computer shop and plans to buy 10 more computers.

  • Decision: BUSINESS LOAN

Page 10: Problem Solving - Scenario 1

• Details: Mr. Garcia borrows P1,000,000 at 7% for 1 year.

  • Calculation: Future Value = P (1 + j)

    • F = Php 1,000,000 (1 + 0.07)

    • F = Php 1,070,000

  • Result: Total amount to be paid after 1 year is P1,070,000.

Page 11: Problem Solving - Scenario 2

• Details: Chattel Mortgage for a car with a borrowed amount of P1,200,000, monthly payment of P31,000 over 5 years.

  • Total Amount = Monthly Payment x Number of Payments

    • TA = (31,000) * (12 * 5) = P1,860,000

  • Total Interest = Total Amount - Amount Borrowed

    • TAI = P1,860,000 - P1,200,000 = P660,000

  • Result: Total interest is P660,000.

Page 12: Problem Solving - Scenario 3

• Details: House sold for P3,000,000, requiring 20% down payment to find mortgage amount.

  • Down Payment = 20% x P3,000,000 = P600,000

  • Mortgage Amount = Cash Price - Down Payment = P3,000,000 - P600,000 = P2,400,000.

Page 14: Problem Solving - Monthly Payment Calculation

• Scenario: Car loan amount P400,000, interest 9% compounded monthly for 5 years.

  • Monthly Interest Rate = 0.09 / 12 = 0.0075

  • Number of Payments = 12 x 5 = 60

  • Formula for Monthly Payment: R = P * [ j / (1 - (1 + j)^-n) ]

  • Result: Monthly payment = P12,719.89.

Page 16: Outstanding Balance Calculation

• Method: Prospective Method to compute outstanding balance as present value of all remaining payments.

Page 17: Problem Solving - Outstanding Balance

• Details: Borrowed amount with monthly amortization of P11,122.22, nominal interest 12% compounded monthly for 5 years.

  • Formula for Outstanding Balance:

    • B = R_k [(1 - (1 + j)^-(n-k)) / j]

  • Result: Outstanding balance after the 12th payment = P422,354.73.

Page 21: Activity Overview

• Scenario 1: Jerry borrows P600,000 for business expansion, effective interest 7.5%, to be paid in 2.5 years.

• Scenario 2: John borrows P1,000,000 for car, with monthly payment P26,758 for 5 years—total interest needed to be calculated.

Page 22: Additional Activities

• Scenario: A house sold for P3,500,000 with a bank-required 30% down payment, calculate the mortgage amount.

• Scenario: Johnny applies for a car loan of P750,000 after a down payment of P120,000 with an interest rate of 6% compounded monthly for 5 years.

Page 24

• Conclusion: Thank you for listening! 11-ABM(A) mmm