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- #EF
- #T15,4,LOANS & OTHER CREDIT BUYING
- #C3,R5
- ~C~IINSTALLMENT LOANS~N
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- Installment loans are widely used for larger purchases -- automobiles, major
- home appliances, even some major home repairs. They are seperately written
- contract agreements, usually secured by the property being purchased, and
- carry lower interest rates than credit cards and other forms of installment
- credit.
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- There are four types of installment loans:
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- 1. ~C~IEqual Periodic Payments~N
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- 2. ~C~IEqual Periodic Payments with a final ("balloon") payment.~N
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- 3. ~C~IInterest Only Payments with a final balloon payment.~N
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- 4. ~C~INo periodic payments, interest and principal due at end of period.~N
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- The first type, Equal Periodic Payments, is by far the most common. However,
- the other three types are also used: an automobile lease with a residual pay-
- ment due at the end of the lease term is an example of the second type, Equal
- Periodic Payments with Balloon.
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- #C3,R5
- The installment loan program in THE FINANCIAL PLANNER can be used to calculate
- any of the four types of installment loans.
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- It will calculate and display the following for any loan:
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- ~C~I1. the amount of the loan payments
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- 2. the total interest paid over the life of the loan
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- 3. the total amount paid (down payment, principal and interest)
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- 4. a periodic payment schedule showing, for each payment period:
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- ∙ the amount of the payment
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- ∙ the principal paid
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- ∙ the interest paid
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- ∙ the remaining loan balance~N
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- The program itself contains detailed samples of calculations for each of the
- installment buying plans. You can see these examples by simply running the
- program with the initial data displayed in the program.
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- #C3,R5
- ~C~IAUTOMOBILE LOANS~N
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- Automobile loans, like most installment loans, are usually designed so that
- the depreciated value of the item purchased is always a little larger than the
- remaining loan balance, throughout the life of the loan.
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- However, it is possible to take on an automobile loan in which, at least for
- some portion of the loan period, the remaining balance will be more than the
- depreciated market value of the automobile. During that portion of the loan,
- you are in what is called an ~C~I"upside-down"~N loan position. That is,
- should you wish to sell the automobile during that period, the market value
- you can expect to receive for the automobile will be less than the loan
- balance you still owe.
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- To help you be aware of such a possibility in your loan, you can enter an
- estimated annual percentage depreciation along with the other loan data. If
- you do, the program will look for any "upside-down" conditions throughout
- the loan, and will indicate such periods, if any, in the payment schedule.
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- #C3,R5
- ~C~IINSTALLMENT CREDIT~N
-
- Retail credit is offered in a variety of forms, and is widely used for retail
- purchases. All forms involve finance charges - but some are less expensive
- than others.
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- Four of the most common installment plans are:
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- ~C~I1. Credit Card
- 2. Markup Plans
- 3. Carrying-Charge Plans
- 4. Easy Payment Plans~N
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- Because the ACTUAL finance cost for a given purchase may vary widely among
- these plans, (even though the plans may at first appear to be comparable in
- cost), and because you usually have a choice between two or more of these
- plans for any purchase, it is worthwhile to have a way to quickly compare
- them.
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- #C5,R5
- MARKUP PLANS
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- ~C~IIn these plans, the retailer marks up the cash price by some percentage,
- subtracts a down payment, and offers to accept a specified number of
- fixed payments for the balance. Interest rates are not stated, (and may
- be very high).~N
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- CARRYING-CHARGE PLANS
-
- ~C~IThese are very much like Markup Plans, except that the retailer first
- subtracts the downpayment, then marks up the balance. Interest rates are
- not stated, and although they are usually less than for markup plans,
- they may also be rather high.~N
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- EASY-PAYMENT PLANS
-
- ~C~IThese are often offered by mail order catalog firms. After subtracting a
- down payment from the cash price, the firm adds a fixed amount to the
- balance and offers to accept a stated amount per month for the balance
- (usually for 12 months). Real interest rates are not stated.~N
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- CREDIT CARDS
-
- ~C~ITypically, these plans include Visa, Mastercard, Discover, and many
- department store cards. Features include a maximium credit line,
- monthly payments of 1/24 of the balance (or a fixed minimum, which-
- ever is greater), and true annual interest rates of 14 to 22 percent.~N
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- #C3,R5
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- The Installment Credit program in THE FINANCIAL PLANNER quickly and easily
- calculates the REAL interest rate of a planned purchase using any one of
- the plans.
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- ~C~IBecause most people have at least one credit card (Visa, Mastercard, etc.),
- one very useful function of this program is to compare the total cost of a
- purchase under any plan to what it would be if the purchase were simply
- charged to a credit card and the minimum monthly payments then made.~N
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- The program itself contains detailed samples of calculations for each of the
- installment buying plans. You can see these examples by simply running the
- program with the initial data provided in the program.
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