Finance · Guided Practice
Loans and Loan Schedules
10 questions with answers and video solutions. Try each one before revealing the answer.
A repayment of is made at the end of each month.
Calculate the balance owed after month.
Give your answer to the nearest penny.
Answer
A repayment of is made at the end of each month.
Calculate the balance owed after the second month.
Give your answer to the nearest penny.
Answer
Calculate the monthly effective rate of interest.
Give your answer as a percentage to 3 decimal places.
Answer
A repayment of is made at the end of each month.
Calculate the balance owed after the third month.
Give your answer to the nearest penny.
Answer
Jill borrows £5650 from a bank.
The annual effective rate of interest on the loan is 9%.
Jill makes level monthly repayments of £186.01 at the end of each month.
Complete the following loan schedule for Jill's loan to show the loan outstanding at the end of month 2.
| Time (months) | Repayment (£) | Interest content of repayment (£) | Capital content of repayment (£) | Loan outstanding (£) |
|---|---|---|---|---|
| 0 | 5650 | |||
| 1 | 186.01 | |||
| 2 | 186.01 |
Answer
Monthly interest rate: (or )
| Time (months) | Repayment (£) | Interest content of repayment (£) | Capital content of repayment (£) | Loan outstanding (£) |
|---|---|---|---|---|
| 0 | 5650 | |||
| 1 | 186.01 | 40.72 | 145.29 | 5504.71 |
| 2 | 186.01 | 39.67 | 146.34 | 5358.37 |
You must refer to the spreadsheet file 'Q9 Car Repayments.xlsx' when answering this question.
Maria is buying a car for £15,000. She has arranged a loan for the full amount from the bank, to be paid back with level monthly repayments for 48 months. The annual effective interest rate is 9.5%.
Open the 'Bank Loan' worksheet.
(a) Complete the 'Loan Repayment Schedule' to determine the level monthly repayment amount, and the final repayment amount.
The car dealership has their own finance options.
Option 1: Pay £300 per month for 48 months, and return the car to the dealer. Additional charges will apply if the mileage exceeds 24000 miles when the car is returned.
Option 2: Pay £300 per month for 48 months, and keep the car by making an additional payment of £5000 in the final month.
Open the 'Car Finance' worksheet.
(b) Complete the 'Finance Repayment Schedule' to find the annual effective interest rate of Option 2.
(c) State two reasons why Maria might decide to purchase the car using the bank loan instead of the car dealership finance options.
Answer
(a) Level monthly repayment: £374.06. Final repayment: £373.99.
(b)
(c) e.g., Maria will own the car outright after 48 months without needing to find a lump sum of £5000. The finance deal is risky - if Maria travels more than 24,000 miles she will pay more due to penalty payments.
You must refer to the spreadsheet file 'Q11 Ramsay's Loan.xlsx' when answering this question.
You must complete parts (a) (i), (a) (ii), (c) (i), and (c) (ii) using the spreadsheet file.
Part (b) must be completed in the space provided.
Ramsay applies to take out a loan of £6000 with a term of 3 years from a bank. Level monthly repayments are made at the end of each month. The effective annual interest rate is 6.3%.
Open the 'Bank Loan' worksheet.
(a)(i) Complete the 'Bank loan repayment schedule' to determine the level monthly repayment amount, and the final repayment amount.
(a)(ii) Determine the total interest paid over the term of the loan.
Ramsay's application for this loan was rejected.
(b) State one reason why a bank might reject a loan application.
Ramsay decides to borrow the money from a loan company. The loan company offers Ramsay £6000 for 3 years with fixed level monthly repayments of £250 made at the end of each month.
Open the 'Loan Company' worksheet.
(c)(i) Complete the 'Loan company repayment schedule' to find the annual effective rate of interest.
(c)(ii) Determine the difference in total interest paid (in £) between the two loans.
Answer
(a)(i) Monthly interest rate calculated as 0.51%. Monthly repayment: £182.87, Final repayment: £182.94 (or £182.88 / £182.58).
(a)(ii) £583.39
(b) E.g., poor credit rating, affordability issues.
(c)(i) 32.61%
(c)(ii) £2416.61 (or £2416.62)
Bailey takes out a loan for £4000 with an annual effective rate of interest of 29.9%.
(a) Calculate the monthly effective rate of interest.
Bailey makes level monthly repayments of £250 at the end of each month.
(b) Complete the following loan schedule for Bailey's loan to show the loan outstanding at the end of month 2.
| Time (months) |
Repayment (£) |
Interest content of repayment (£) | Capital content of repayment (£) | Loan outstanding (£) |
|---|---|---|---|---|
| 0 | 4000.00 | |||
| 1 | 250.00 | |||
| 2 | 250.00 |
Answer
(a) 2.20...%
(b) Month 1: Interest £88.16, Capital £161.84, Loan outstanding £3838.16.
Month 2: Interest £84.59, Capital £165.41, Loan outstanding £3672.75.
Freddie has a credit card with an annual effective rate of interest of 29.9%. Interest is applied at the end of each month. Payments must be made on the first day of each month. The minimum payment must be either 5% of the balance outstanding at that time or £5, whichever is higher.
After Freddie makes his payment on 1 March, the balance of his credit card was £823.19. Freddie does not use his credit card during March.
(a) Calculate the balance of his credit card on 1 April after Freddie has made the minimum payment.
(b) Give one reason why Freddie should consider paying the full balance of his credit card each month.
Answer
(a) £799.26
(b) e.g., To avoid additional interest charges.
You must refer to the spreadsheet file 'Q9 Esme's Mortgage.xlsx' when answering this question.
Esme is building an extension to her house. She has been offered a £25,000 mortgage with an effective annual rate of interest of 3.5% over 5 years. Open the 'Mortgage' worksheet.
(a) Complete the 'Mortgage schedule' to determine the level monthly repayment amount, and the final repayment amount.
Esme needs new building insurance once the extension is completed. She is choosing between the following two options.
| Cost per year(£) | Total excess(£) |
|---|---|
| 216.94 | 350 |
| 281.95 | 100 |
(b) (i) State one advantage of having a high excess amount on your insurance policy.
One of the windows in Esme's house is broken and she has to decide whether to make a claim.
(ii) Explain why Esme may choose not to make a claim using her insurance policy.
The maximum monthly repayment allowed by the lender is £550. Esme chooses to reduce the term of her mortgage by increasing her monthly repayments to the maximum amount. Open the 'Increased payments' worksheet.
(c) (i) Complete the 'Increased payments schedule' for the reduced term and calculate the final repayment amount.
(ii) Determine how much money this would save Esme over the term of her mortgage.
Answer
(a) Monthly interest rate is 0.287...%. Level monthly repayment is £454.18 and the final repayment is £454.12.
(b)(i) e.g., It reduces the cost of your premium.
(b)(ii) e.g., When the damage claimed is less than the excess amount on the policy, or making a claim could increase the cost of future premiums.
(c)(i) Final repayment amount is £427.19.
(c)(ii) She would save £423.55 (or £423.57).