Basic

Concept of
Loans
Basic Terminologies

Loan
- it is the sum of money that is borrowed
from lending institution with the promise to
pay back with interest over a pre-determined
period of time.
Loan amount (mortgage)
- it is the original amount borrowed.
Basic Terminologies

Tenor
- it is the determined length of time over
which the loan will be repaid.
Collateral
- it is the security that the lender holds in
the event that the borrower will be unable to
repay the loan
Basic Terminologies

Repayment Scheme
- it is the agreed frequency of when
repayments will be made.
Interest Rate
- it is the agreed rate of interest that will be
charged for taking the loan.
Basic Terminologies

Business Loan
- it is the money lent specifically for a
business purpose. It may be used to start a
business or to have a business expansion.
Consumer Loan
- it is the money lent for an individual for
personal or family purpose.
Examples
Identify whether the following is a
business loan or a consumer loan:
1. Mr. Agustin plans to have a
barbershop. He wants to borrow some
money from the bank in order for him
to buy the equipment and furniture for
the barbershop.
2. Mr. and Mrs. Craig wants to borrow
money from the bank to finance the
college education of their son.
Examples
Identify whether the following is a business
loan or a consumer loan:
1. Mr. Alonzo wants to have an
improvement on their 10 year-old house.
He wants to build a new room for their 13
year-old daughter. He will borrow some
money from the bank to finance this plan.
2. Roan has a computer shop. She owns 6
computers. She decided to borrow some
money from the bank to buy more 10
computers.
Types of Consumer Loans
Auto Loan
Loan Amount/Mortgage
- usually the bank put up at least 20% share
Tenor
- usually range from 3 – 5 years.
Collateral
- the vehicle, itself.
Repayment Scheme
- It is usually monthly.
- Amortization (monthly payments, including the interest and the principal
payment of the loan).
Interest Rate
- it is quoted in annual terms
- add-on rate
PMT
Add - On
Add - On
Add - On

-1
Compute for the required monthly amortization, add-on rate and total
interest

Value = P500 000;

Loan Value = 70%;
Rate = 4% annually;
Tenor = 2 years
Compute for the required monthly amortization, add-on rate and total
interest

Value = P900 000;

Loan Value = 80%;
Rate = 6 annually%;
Tenor = 4 years
Compute for the required monthly amortization, add-on rate and total
interest

Value = P2 000 000;

Loan Value = 60%;
Rate = 10 annually%;
Tenor = 5 years
Compute for the required monthly amortization and total interest

Value = P1 500 000;

Loan Value = 80%;
Rate = 12% add-on;
Tenor = 4 years
Compute for the required monthly amortization and total interest

Value = P600 000;

Loan Value = 60%;
Rate = 8% add-on;
Tenor = 6 years
Compute for the required monthly amortization and total interest

Value = P750 000;

Loan Value = 50%;
Rate = 14% add-on;
Tenor = 5 years
Example

Harvey is looking to purchase a

vehicle worth P1 500 000. Having
only P1 000 000 free from other
investments, he goes to a bank
offering an add-on rate of 1.80%
for a 3 year loan. How much will
his monthly amortization be?
Example

Noel wants to purchase a P1 175

375 car. He goes to a bank that
requires him to put up at least
30% share. How much does he
need to pay every month if the
bank offers a 8% compounded
quarterly for 4 years?
Example

Ms. Rosal bought a car. After

paying the down payment, the
amount of the loan is P400 000
with an interest rate of 9%
compounded monthly. The term
of the loan is 3 years. How much
is the monthly payment?
Example
A newly married couple decided to
buy a brand new car. The net
amount of the car is P500 000. They
plan to amortize the loan in monthly
instalments for 3 years. If money is
worth 12% convertible monthly, how
much is the monthly instalment?
How much is the outstanding
balance after the second payment?
Types of Consumer Loans
Home Loan
Loan Amount/Mortgage
- Ranges from 50% to 80%
Tenor
- with a length of 20 years
Collateral
- the property acquired
Repayment Scheme
- It is usually monthly.
- Amortization (monthly payments, including the interest and the
principal payment of the loan).
Interest Rate
- it is quoted in annual terms
Example
Mr. and Mrs. Cruz purchased a
house and lot worth P4 000 000.
They paid a down payment of P800
000. They plan to amortize the loan
P3 200 000 by paying monthly for 20
years. The interest rate is 12%
convertible monthly. How much is
the monthly payment? What is the
total interest paid?
Example
For a purchase of house and lot
worth P3 800 000, the bank
requires 20% down payment, find
the mortgaged amount? How
much is the monthly payment for
15 years compounded monthly
with an interest rate of 9%. What
is the total interest paid?
Example
If a condominium is purchased
for P5 700 000 and the bank
requires 30% down payment, how
much is the mortgaged amount?
How much is the monthly payment
for 20 years compounded monthly
with an interest rate of 6.5%. What
is the total interest paid?
Example
For the purchased of a farm
worth P2 800 000, the bank
requires 40% down payment, find
the mortgaged amount. How
much is the monthly payment for
7 years compounded monthly
with an interest rate of 5%. What
is the total interest paid?
Example
Mrs. Santos wanted to purchase a
condominium unit worth P1 700 000.
After assessment, the bank requires
her a down payment of 25% with an
interest rate of 8%. If she could save
up to P75 000 per month, what is the
shorter tenor(rounded to the nearest
year) that would suit her repayment
capacity?
Example
Mr. Abaya got a P700 000 loan
for the renovation of their house.
What is the shorter tenor(rounded
to the nearest year) that would
suit his repayment capacity if the
monthly amortization is P18 433.
68, compounded monthly with an
interest rate of 12%?
Types of Consumer Loans
Personal Loan
Loan Amount/Mortgage
- No loan value is required.
Tenor
- It depends on the applicant’s choice
Collateral
- No collateral
Repayment Scheme
- It is usually monthly.
Interest Rate
- monthly add-on rate is quoted
 Example

Monthly Interest = PV x I

Monthly Principal = PV/N

Monthly Amortization = (PV)(I) + (PV)(N)

N=
Add-on =
Example

A loan of P800 000 is to be

repaid in 3 years. If the monthly
add-on rate is 1.45, what is the
monthly interest? What is the
monthly amortization? How
much is the total interest?
Example

Mrs. Sia got a P50 000 mortgage

to be repaid in 2 years. If the
monthly add-on rate is 1.40%,
what is the monthly interest?
What is the monthly
amortization? How much is the
total interest?
Example

Mrs. Yuzon obtained a

mortgaged of P120 000 for 1 year.
If the monthly add-on rate is
1.35%, what is the monthly
interest? What is the monthly
amortization? How much is the
total interest?
Example

Mrs. Yuzon obtained a 1 ½ year

mortgaged for P70 000. If the
monthly add-on rate is 1.5%,
what is the monthly interest?
What is the monthly
amortization? How much is the
total interest?
Example

Mr. Viloria obtained a

mortgaged of P65 000 for 3 years.
If the monthly add-on rate is
1.70%, what is the monthly
interest? What is the monthly
amortization? How much is the
total interest?
Example

Mrs. Nervaez obtained a

mortgaged of P125 000. If the
bank offers her a monthly add-on
rate of 2.30%, what is the shortest
time he needs to repay the loan
assuming that he can only pay a
maximum of P15 000 monthly?
Example

Alexander borrowed money via

personal loan worth P65 000.If the
bank offers him a monthly add-on
rate of 1.25%, what is the shortest
time he needs to repay the loan
assuming that he can only pay a
maximum of P12 500 monthly?
Example

Jamaica borrowed money via

personal loan worth P50 000 to be
repaid in 8 months. He can only
pay a maximum of P8 500
monthly. What is the monthly
add-on rate offered by the bank to
repay the loan?
Example

Mr. Perez obtained a mortgage

P100 000 to be repaid in 1 year.
He can only pay a maximum of P
23 000 monthly. What is the
monthly add-on rate offered by
the bank to repay the loan?