## 11.2 Outline

- Terminology
- types of installments
- closed-end loan
- open- end loan

- ways of calculating interest
- add-on interest
- amortization

- types of installments
- . Add-on interest
- installment loan formulas
- buying a car

- Annual percentage rate (APR)
- APR formula
- compare 0% financing with APR

- . Open-end credit
- Credit card interest
- finance charge
- previous balance method
- adjusted balance method
- average daily balance method
- grace period

## 11.2 Essential Ideas

**Installment loans:**

AMOUNT OF INTEREST: *I = Prt
*

**Formulas**

AMOUNT TO BE REPAID:

*A = P + I *or *A = P *(1 +*rt*)

NUMBER OF PAYMENTS:

*N=*12*t
*

AMOUNT OF EACH PAYMENT:

*m = A/N*

The annual percentage rate, or APR, is the rate paid on a loan when that rate is based on the actual amount owed for the length of time that it is owed. It can be found for an add-on interest rate, *r*, with *N *payments by using the formula

APR = 2*Nr*/(*N +*1)

**Methods of calculating credit card interest:**

**Previous balance method **Interest is calculated on the previous month’s balance.

**Adjusted balance method**Interest is calculated on the previous month’s balance

*less*credits and payments.

**Average daily balance method**Add the outstanding balances for

*each day*in the billing period and then divide by the number of days in the billing period to find the

*average daily balance.*