Lesson 1

Consumer vs.
Business Loans
 Objectives

At the end of this lesson, the learner should be able to

• correctly illustrates business and consumer loans;

and

• correctly distinguish consumer loans and business

loans.
 Essential Questions

• How can loans help us in our everyday lives?

• Can loans be a bad thing? Why do you think so?

 Warm Up!

It is important to review the formulas that we have discussed

before we define the terms and definitions under loans. Here
is an online quiz that will refresh you with some formulas for
compound interest and annuities.

(Click on the link to access the quiz.)

McFarland, Thomas. “Compound Interest and Annuities.”

University of Wisconsin Whitewater. Retrieved 05 June 2019
from http://math.uww.edu/~mcfarlat/annuity.htm
 Guide Questions

● Were you able to solve all the problems correctly?

● How can you determine if the problem involves compound

interest?

● How can you determine if the problem involves ordinary

annuities?
 Learn about It!

Loan
1 a debt provided by one entity (an individual or an organization) to another entity
at an agreed interest rate

Example:
Personal loans, mortgages, government bonds, and bank
loans are examples of loans.
 Learn about It!

2 Consumer Loans
loans given to individuals for personal or family purpose

Example:
Educational loans, bank loans for personal purposes such as
gadgets, tuition fee and cars, and housing loans are examples
of consumer loans.
 Learn about It!

3 Business Loans
loans given to individuals or groups of people for business purposes

Example:
Bank loans for starting business, equipment, and expansion
are examples of business loans.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.

a. Mr. Gamboa’s daughter is entering college. He decided

to apply for a loan so he can use the money to fund his
daughter’s tuition fee.

b. Regine wants to expand her clothing business. She

decided to apply for a loan so she can use the money
for new equipment.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.
a. Mr. Gamboa’s daughter is entering college. He decided
to apply for a loan so he can use the money to fund his
daughter’s tuition fee.
Solution:
a. Mr. Gamboa should apply for a consumer loan because
he will use the money for personal purposes and not for
business purposes.
 Try It!

Example 1: Identify if the following scenario shows a

business loan or a consumer loan.
b. Regine wants to expand her clothing business. She
decided to apply for a loan so she can use the money
for new equipment.
Solution:
b. Regine should apply for a business loan because she will
use the money for business purposes and not for her
personal use.
 Try It!

Example 2: Chris bought a new laptop. After paying the

down payment, the amount of the loan is ₱30 000 with an
interest rate of 8% compounded quarterly. The term of the
loan is 1 year. How much will be her quarterly payment?
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
1. List the given.

The present value is ₱30 000.

The interest rate is or .
The compounding period is quarterly, or .
The time is 1 year.
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
The periodic rate can be computed as follows.
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
The number of compounding periods is computed as
follows.
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
2. Use the formula for the present value of an ordinary
annuity to solve for the quarterly payments.
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
 Try It!

Example 2: Chris bought a new laptop. After paying the down payment, the amount of the
loan is ₱30 000 with an interest rate of 8% compounded quarterly. The term of the loan is 1
year. How much will be her quarterly payment?

Solution:
Therefore, Chris’ quarterly payment is ₱7 878.71.
 Let’s Practice!

Individual Practice:

1. Justin obtained a loan worth ₱30 000. The term of

transaction is 13% simple interest payable after two years.
How much will he pay on the maturity date?

2. Ella loaned ₱10 000 at 9% compounded quarterly. How

much will she pay if she will settle this loan after two
years?
 Let’s Practice!

Group Practice: To be done in groups with 3 members

Jessica wants to buy a new LED TV. A store offered her a TV

that requires a ₱5 000 down payment and a monthly
payment of ₱3 000 with 8.6% interest compounded monthly
for two years. What is the actual price of the TV?
Key Points

Loan
1 a debt provided by one entity (an individual or an organization) to another entity
at an agreed interest rate

2 Consumer Loans
loans given to individuals for personal or family purpose.

3 Business Loans
loans given to individuals or groups of people for business purposes
 Synthesis

• How do you differentiate a business loan from a consumer

loan?

• Is it a good idea to take a personal loan in buying the

things that you want? Why do you think so?

• Have you ever heard the term “Amortization”?