Question
3. Characteristics of single-payment or installment loans andfixed- or variable-rate loans Single-Payment versus Installment Loans, and Fixed-Rate versus Variable-Rate Loans Payments on consumer loans are
3. Characteristics of single-payment or installment loans andfixed- or variable-rate loans
Single-Payment versus Installment Loans, and Fixed-Rate versus Variable-Rate Loans
Payments on consumer loans are described by the terms of the loan. When the loan is paid is one factor. An installment loan is paid either periodically over the life of the loan, usually monthly, and a singlepayment loan is what the name implies: a loan whose entire balance is paid at once, usually ranging from a month to a year after the loan is made. Interest charged on the loan is another factor. Rates are either fixed or variable. A fixed rate is the same throughout the life of the loan. A variable rate may change over the life of the loan and is usually tied to current market conditions.
Kyoko and Musashi both needed loans, but they had different reasons, personalities, and financial positions. They each had to choose between obtaining a single-payment or an installment loan.
Kyoko
Kyoko wanted to rent a share in a ski house for the upcoming winter, a six-month season. The house owner would not allow Kyoko to pay the rent in six equal payments over the course of the ski season and, instead, required full payment up front. Kyoko found an investment opportunity promising a 7% annual return. She also found a loan with a 4% annual interest rate. She decided to take out the loan to pay the landlord the full amount of the rental. Every month, Kyoko planned to deposited one sixth of the loan amount (or what would have been the monthly rental payment) into the investment and take the chance that the investment would return what it promised.
Kyoko most likely took out (1) loan because she (2)
Musashi
Musashi took out a loan to buy new furniture. He has a steady job and a small savings account but didnt want to pay cash for the furniture. Musashi manages his finances so that his monthly income and expenses are consistent. He doesnt expect any financial windfalls in the near or distant future.
Musashi most likely took out (3) loan because (4)
Sean and Cho both needed loans, but they had different reasons, personalities, and financial positions. They each had to choose between obtaining a fixed-rate or variable-rate loan.
Sean
Sean took out a ten-year loan. He paid $368 every month for 120 months, until the loan was paid off.
Sean most likely took out a (5) loan because the monthly payment and number of payments (6) .
Cho
Cho needed a long-term loan, somewhere between 15 and 30 years. She learned that the longer the term, the fewer rate options she had. Cho finally had to go with the 30-year loan.
Cho most likely took out a (7) loan because (8)
*Please choose Word choice (Drop-off) for empty
1. a single payment/ an installment
2. made best use of rental money/ didn't want to write a lot of checks
3. a single payment/ an installment payment
4 He doesn't want to keep track up multiple payments/ He can slow but surely pay off loans
5. variable-rate/ fixed rate
6. didn't change/ changed
7. variable-rate/ fixed rate
8. The long-term probably assured a variable rate/ interest rates were holding steady
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