9. Calculating an installment loan payment using the add-on method

Calculating the Loan Payment on an Add-On Interest Installment Loan

Installment loans allow borrowers to repay the loan with periodic payments over time. They are more common than singlepayment loans because it is easier for most people to pay a fixed amount periodically (usually monthly) than budget for paying one big amount in the future. Interest on installment loans may be computed using the simple interest method or the add-on method.

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 decreasing/original balance of the loan. Finance charges using the add-on method are computed using the simple interest formula:

Fs = Amount of Loan x Interest Rate x Term of Loan

where Fs is the finance charge for the loan, and the term of the loan is in years/ months .

Youre borrowing $6,000 for a year and a half with a stated annual interest rate of 6%.

Complete the following table. (Note: Round your answers to the nearest dollar.)

Principal	$6,000
Finance charge	$
Total payback	$

You will make monthly payments throughout the life of the loan, in this case, ..months.

What will your monthly payments be? Round your answer to the nearest cent. $..