10. Comparing payments on installment loans when using the simple interester add-on methods to compute finance charges Comparing Loan Payments Using the Simple Interest and Add On Methods of Interest Computation Installment loans allow borrowers to repay the loan with periodic payments over time. They are more common than single-payment loans because is easier for most people to pay a feved amount periodically (usually monthly) than budget for paying one big amount in the future. Interesten installment loans may be computed using the simple interest method of the add-on method. For an installment loan using simple interest and equal payments throughout the life of the loan, interest is charged only on the outstanding balance. As each payment is made, more of it is allocated to reducing the principal. As the principal ownd decreases, so too does the interest charged on it. Since the payment is always the same each month, the allocation between principal and interest is always diferent (more to the principal and less to the interest) The add-on method is a widely used technique for computing interest on installment loans. With the add-on method, interest is calculated by applying the stated interest rate to the original balance of the loan. Susan and Becky are taking out installment loans for $2,500 at a stated interest rate of 10%. The term of each loan is two years Susan and Becky are taking out installment loans for $2,300 at a stated interest rate of 10%. The term of each loan is two years. Rate of Interest 12 24 36 48 60 72 84 5 $85.61 $43.87 $23.03 $18.87 $16.10 6 $29.97 $30.42 $86.07 $44.32 $23.49 $19.33 $16.57 $14.13 $14.61 $15.09 7 $86.53 $30.88 $23.95 $19.80 $17.05 $44.77 $45.23 8 $86.99 $31.34 $24.41 $20.28 $17.53 $15.59 9 $87.45 $45.68 $31.80 $24.88 $20.76 $18.03 $16.09 10 $87.92 $46.14 $32.27 $25.36 $21.25 $18.53 $16.60 11 $88.38 $46.61 $32.74 $25.85 $17.12 $21.74 $22.24 $19.03 $19.55 12 $88.85 $47.07 $33.21 $26.33 $17.65 Answer the following questions using the preceding repayment information table as necessary Susan Becky Susan's loan uses simple interest to compute finance charges Becky's loan uses the add-on method to compute france charges Susan's monthly payment rounded to the nearest centis Becky's total finance charge rounded to the nearest centis Complete the following tables using all interim figures rounded to the nearest cent in your calculations. Enter allures as positive numbers onded to the nearest cont. (Note: The tables are slightly different to reflect the different methods used for finance charge) Susan - Simple Becky - Addon Total payments Principal Principal $ Finance charge $ Finance charge Total payments Who paid more for the same loan? Becky, whose loan used the simple interest method to compute finance charges Susan, whose loan used the sample interest method to compute finance charges Susan, whose loan used the add-on method to compute finance charges Becky, whose loan used the add-on method to compute finance charges
