GENERAL MATHEMATICS

QUARTER 2 WEEK 6

SELF-LEARNING MODULE
DEPARTMENT OF EDUCATION
DIVISION OF NORTHERN SAMAR
 Basic Concepts of Loans

How to use and learn from this module

Below are the guidelines for you in going about the module.

1. Read and follow instructions very carefully.

2. Answer the pre-test to determine how much you already know about the lessons
in this module.
3. Check your answers in the given answer key at the end of this module.
4. Read each lesson and do the activities that are provided for you.
5. Ask for assistance from your parents or teacher if you have some confusion about
the lessons in this module.
6. Perform all the activities diligently to help you understand the topic.
7. Take the self-test after each lesson to determine how much you understand the
topic.
8. Answer the posttest to measure how much you have gained from the lessons.

Goodluck and have fun!

What is this Module all about?

In many aspects of modern life, Mathematics plays an important role. In the field of
business, mathematics is essential in analyzing markets, predicting stock market prices,
business decision making, forecasting production, financial analysis, and in business
operation in general. This module will introduce the students to the basic concepts of
business mathematics such as the simple and compound interests.
This module covers the content standards on the sixth week of the Second Quarter.

Module 9: Basic Concepts of Loans

Content Standard: The learner demonstrates understanding of basic concepts of

business and consumer loans.
Performance Standard: The learner is able to decide wisely on the appropriateness
of business or consumer loan and its proper utilization.
Learning Competencies:
• Illustrates business and consumers loans
• Distinguish between business and consumer loans
• Solve problems involving business and consumer loans (amortization and
mortgage)

General Mathematics 1
 Basic Concepts of Loans

Lesson 8: Business Loans and Consumer Loans

Objectives

a able to
At the end of this lesson, you will be

a. Illustrates business and consumers loans

b. Distinguish between business and consumer loans
c. Solve problems involving business and consumer loans (amortization and
mortgage)

Pre-test

Read the questions carefully. Write the letter that corresponds to your answer in
your notebook.

1. It is a money lent especially for a business purpose.

a. Business Loan c. Consumer Loan
b. Collateral d. Term of the Loan

2. It is a money lent to an individual for personal or family purpose.

a. Business Loan c. Consumer Loan
b. Collateral d. Term of the Loan

3. It is a financial obligation of paying someone a certain amount for the use of his/her
Money
a. Business Loan c. Consumer Loan
b. Loan d. Amortization

4. It is gradual extinction of a debt, principal, and interest, by sequence of equal periodic

payments or installment payments due at the ends of equal intervals of time.
a. Business Loan c. Consumer Loan
b. Loan d. Amortization

5. It is a business loan or consumer loan that is secured with a collateral.

a. Mortgage c. Collateral
b. Loan d. Amortization

General Mathematics 2
 Basic Concepts of Loans
Preliminary
The basic concepts of loans are very familiar to every individual. Through loans,
people, business persons, entrepreneurs, and even family persons receive assistance in
addressing financial needs from different lending corporations. Loan is not just limited to
borrowing money in a bank to finance business expansion, but also covers the use of
credit card, amortizing appliances, and many more. In this module, you will learn how to
construct an amortization schedule of your loan.

Lesson Proper

Definition of Terms
Business Loan - money lent specifically for a business purpose. It may be used to start
a business or to have a business expansion
Consumer Loan - money lent to an individual for personal or family purpose
Collateral - assets used to secure the loan. It may be real-estate or other investments
Term of the Loan - time to pay the entire loan
Amortization Method - method of paying a loan (principal and interest) on installment
basis, usually of equal amounts at regular intervals
Mortgage - a loan, secured by a collateral, that the borrower is obliged to pay at specified
terms.
Chattel Mortgage - a mortgage on a movable property
Collateral - assets used to secure the loan. It may be a real-estate or other investments
Outstanding Balance - any remaining debt at a specified time

Formula for finding Payments on an Amortized Loan

The periodic Payment R for an amortized loan P at an interest rate I to be

paid in n installments is given by the formula

(1 + 𝑖)𝑛 − 1
𝑃(1 + 𝑖)𝑛 = 𝑅
𝑖

Example 1: An amortized car loan of ₱1,000,000 for purchasing a brand-new car is

granted new car is granted to Mr. Enriquez by a bank. If the loan is to be paid in 5 years
at an annual interest rate of 12%, find the monthly amortization.

Solution:
The number of payments to be made is 𝑛 = 12 × 5 𝑦𝑒𝑎𝑟𝑠 = 60 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠.
12%
The monthly interest rate is 𝑖 = 12 = 1% = 0.01
The principal is 𝑃 = ₱1,000,000.

Substituting these values to the formula for finding payments on an amortized

loan gives

𝑛
(1 + 𝑖)𝑛 − 1
𝑃(1 + 𝑖) = 𝑅
𝑖
60
(1 + 0.01)60 − 1
(1,000,000)(1 + 0.01) = 𝑅
0.01
1,816,696.699 = 𝑅(81.66966986)
1,816,696.699
𝑅=
81.66966986
𝑅 = 22,244.45

General Mathematics 3
 Basic Concepts of Loans
Hence, Mr. Enriquez will pay P22,244.45 a month for 60 months.

Example 2: If a house is sold for P3,000,000 and the bank requires 20% down
payment, find the amount of the mortgage.

Solution:
Down payment = (𝑑𝑜𝑤𝑛𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒) 𝑥 (𝑐𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒)
= 0.20 (3,000,000)
= 600,000

Amount of the Loan = ( 𝑐𝑎𝑠ℎ 𝑝𝑟𝑖𝑐𝑒 ) – ( 𝑑𝑜𝑤𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡)

= 3,000,0000 − 600,000
= 2,400,000

The mortgage amount is ₱2,400,000.00

Example 3: Mr. and Mrs. Banal purchased a house and lot worth P4,000,000. They paid
a down payment of P800,000. They plan to amortize the loan of P3,200,000 by paying
monthly for 20 years. The interest rate is 12% convertible monthly.
a. How much is the monthly payment?
b. What is the total interest paid?

Solution:
a.
Given: 𝑃 = 3,200,000.00
𝑖 12 = 0.12
𝑖 12 0.12
𝑗 = 12 = 12 = 0.01
𝑛 = 𝑚𝑡 = (12)(20) = 240

Find: Regular Payment R = ?

(1 + 𝑖)𝑛 − 1
𝑃(1 + 𝑖)𝑛 = 𝑅
𝑖

(1 + 0.01)240 − 1
(3,200,000)(1 + 0.01)240 = 𝑅
0.01

34,856,171.692395 = 𝑅(989.25536538736)

34,856,171.692395
𝑅=
989.25536538736
𝑅 = 35,234.76

Therefore, the monthly payment is ₱𝟑𝟓, 𝟐𝟑𝟒. 𝟕𝟔

b. Given: 𝑃 = 3,200,000.00
𝑅 = 35,234.76
𝑛 = 240
Find: Total interest paid.

There are 240 payments of P35,234.76.

The total payment is 240 × P35, 234.76 = P8, 456, 342.40.

General Mathematics 4
 Basic Concepts of Loans
The principal is only P3,200,000.
Interest Amount = (𝑇𝑜𝑡𝑎𝑙 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠) − (𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙)
= 8, 456, 342.40 − 3, 200, 000
= 5, 256, 342.40

The interest amount is P5,256,342.40

Practice!
Directions: Identify whether following is a business loan or 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.

3. Mr. Alonzo wants to have some improvements 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.

4. Mr. Samson owns a siomai food cart business. He wants to put another food cart on a
new mall in the other city. He decided to have a loan to establish the new business.

5. Roan has a computer shop. She owns 6 computers. She decided to borrow some
money from the bank to buy 10 more computers.
(see answer key to check your understanding)

Assessment
Solve the following problems.

1. A business loan of 800,000 is to be repaid in full after 2 years. What is the amount to
be paid if the effective rate of interest is 8%?

2. For the purchase of a farm worth P2,800,000, the bank requires 30% down payment,
find the mortgaged amount.

3. If a condominium is purchased for P1,700,000 and the bank requires 25% down
payment, how much is the mortgaged amount?

4. Mr. Sia got a P1,100,000 mortgage. If the monthly payment is P33,000 for five years,
how much is the total interest paid?

5. Mr. Yuson obtained a 20-year mortgage for P2,200,000. If his monthly payment is
P18,500, how much is the total interest?

References

General Mathematics, Orlando, O. A., 2016

GENERAL MATHEMATICS Quarter 2 - Module 9: Basic Concepts of Loans
Next Century Mathematics General Mathematics 11, Orines, Fernando B., 2016
Answers Key

General Mathematics 5
 Basic Concepts of Loans

Pretest pg. 2
1. a
2. c
3. b
4. d
5. a

Practice pg. 5
1. Business Loan
2. Consumer Loan
3. Consumer Loan
4. Business Loan
5. Business Loan

General Mathematics 6