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Learning Competency: (1) Illustrates business and consumers loans (2) Distinguish between

business and consumer loans (3) Solve problems involving business and consumer loans

(amortization and mortgage)

Code: M11GM-IIf-1, f-2 and f-3

Semester: 1st Semester

Quarter: 2nd Quarter

Number of Hours: 3 Hours

Prepared by:

MARILOU V. TOMPONG

Department of Education • Republic of the Philippines

Grade

11

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2

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WHAT’S NEW LESSON 1

BUSINESS LOANS AND CONSUMER LOANS

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.

What I Need to Know

At the end of this lesson, the learner will be able to:

1. Illustrates business and consumers loans

2. Distinguish between business and consumer loans

To achieve the objectives of this module, do the following:

Take your time reading the lessons carefully.

Follow the directions and/or instructions in the activities and exercises

diligently.

Answer all the given tests and exercises.

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What I know…

Direction: Choose the letter of the correct answer and write the correct letter on the separate sheet of paper.

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

a. Business Loan b. Consumer Loan

c. Collateral d. Term of the Loan

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

a. Business Loan b. Consumer Loan

c. 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 b. Consumer Loan

c. 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 b. Consumer Loan

c. Loan d. Amortization

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

a. Mortgage b. Collateral

c. Loan d. Amortization

6. An assets that can secure a loan.

a. Mortgage b. Collateral

c. Loan d. Amortization

7. It is a method of paying a loan (principal and interest) on installment basis, usually of equal amounts at regular intervals.

a. Mortgage b. Collateral

c. Outstanding Balance d. Amortization Method

PRE – TEST

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8. It is a mortgage on a movable property.

a. Mortgage b. Chattel Mortgage

c. Amortization d. Amortization Method

9. Any remaining debt at a specific time.

a. Outstanding Balance b. Chattel Mortgage

c. Amortization d. Amortization Method

10. It is the time to pay the entire loan.

a. Mortgage b. Chattel Mortgage

c. Amortization d. Term of the Loan

11. It is a mortgage with a fixed interest rate for its entire term.

a. Mortgage b. Chattel Mortgage

c. Fixed-rate mortgage d. Term of the Loan

12. A loan of ₱200,000.00 is to be repaid in full after 3 years. If the interest rate is 8% per annum. How much should be paid after 3 years?

a. ₱251,942.40 b. ₱215,942.40

c. ₱251,492.40 d. ₱215,492.40

13. For a purchase of a house and lot worth ₱3,800,000.00, the bank requires 20% down payment, find the mortgaged amount.

a. ₱3,400,000.00 b. ₱3,004,000.00

c. ₱3,000,400.00 d. ₱3,040,000.00

14. A car dealer offers a 15% down payment for the purchase of a car. How much is the mortgaged amount if the cash value of the car is ₱1,500,000.00

a. ₱1,257,000.00 b. ₱1,752,000.00

c. ₱1,275,000.00 d. ₱1,725,000.00

15. If a condominium is purchased for ₱5,700,000.00 and the bank requires 30% down payment, how much is the mortgaged amount?

a. ₱3,990,000.00 b. ₱3,099,000.00

b. ₱3,909,000.00 d. ₱3,009,000.00

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LET’S EXPLORE:

Your family is planning to apply for a loan to purchase a car. You are offered by the

lending corporation the following information regarding the amount you will be borrowing:

Option 1: A monthly payment of ₱23,500.00 for three years

Option 2: A monthly payment of ₱14,600.00 for five years

Which of the two options will you take? Why?

WHAT’S NEW

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

Consumer loans are loans given to individuals for personal or family purpose while

business loans are loans for businesses. Consumer loans and business loans may require a

collateral. The col- lateral for both loans may be real estate or other investments. For business

loans, they can use equipment, fixtures or furniture as collateral. Consumer loans do not

usually require a guarantor. Business loans require the business owners to sign as guarantors.

For consumer loans, the bank or the lending institution may require a credit report, bank

statements, and an income tax return, and if the lendee is employed, a certificate of

employment and employee pay slips. For business loans, the lendee has to submit a credit

Definition of terms

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report, income tax returns and company's financial statement. The term of the business loan

is generally shorter than the consumer loan. The interest rate for the business loan is usually

higher than that for the consumer loan.

WHAT’S NEW

LESSON 2

Solving Problems on Business and Consumer

Loans (Amortization and Mortgage)

What I Need to Know

At the end of the lesson, the learner will be able to :

1. Solve problems on business and consumer loans (amortization and

mortgage)

Lesson Outline:

1. Definition of Terns

2. Loan Repayment

3. Interest Amount

4. Mortgage and Amortization

5. Outstanding Balance

To achieve the objectives of this module, do the following:

Take your time reading the lessons carefully.

Follow the directions and/or instructions in the activities and exercises

diligently.

Answer all the given tests and exercises.

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WHAT’S NEW…

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

A mortgage is a business loan or a consumer loan that is secured with a collateral.

Collaterals are assets that can secure a loan. If a borrower cannot pay the loan, the lender

has a right to the collateral. The most common collaterals are real estate property. For

business loans, equipment, furniture and vehicles may also be used as collaterals. Usually, the

loan is secured by the property bought.

For example:

If a house and lot is purchased, the purchased house and lot will be used as a

mortgaged property or a collateral. During the term of the loan, the mortgagor, the borrower

in a mortgage, still has the right to possess and use the mortgaged property. In the event that

the mortgagor does not make regular payments on the mortgage, the mortgagee or the

lender in a mortgage can repossess the mortgaged property. The most common type of

mortgage is the fixed-rate mortgage wherein the interest remains constant throughout the

term of the loan.

Definition of terms

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Mr. Garcia borrowed ₱1,000,000.00 for the expansion of his business. The effective

rate of interest is 7%. The loan is to be repaid in full after one year. How much is to be paid

after one year?

Solution:

Given: P = 1,000,000

j = 0.07

n = 1

Find: F=?

𝐹 = 𝑃(1 + 𝑗)𝑛

𝐹 = 1,000,000(1 + 0.07)1 = 1,070,000

An amount of ₱1,070,000.00 must be paid after one year.

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 1.

EXAMPLE 2.

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Time Diagram:

P n-k payments

Recall that the outstanding balance of a loan is the amount of the loan at this time.

One method to compute the outstanding balance is to get the present value of all remaining

payments. This method is called the prospective method.

R R . . . R R R . . . R

0 1 2 . . . k k+1 k+2 . . . k+n

𝐵𝑘

We use the symbol 𝐵𝑘 to denote the outstanding balance after k payments. ( the “P” stands

for “prospective”.

Mrs. Sy borrowed some money from a bank that offers an interest rate of 12%

compounded monthly. His monthly amortization for 5 years is P11, 122.22. How much is the

outstanding balance after the 12th payment?

Solution:

Given: R = 11,122.22

𝑖(12) = 0.12

𝑗 = 𝑖(12)

12=

0.12

12= 0.01

k = 12 number of payments paid

Outstanding Balance

Value of the remaining n-k payments

immediately after the kth payment

EXAMPLE 1.

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n – k = 48 since only 48 payments remain

Find: Present value of 48 future payments (since there are 48 payments left)

𝐵𝑘 = 𝑅 [1−( 1+𝑗)−(𝑛−𝑘)

𝑗]

𝐵𝑘 = 11,122.22 [1−( 1.01)−48

0.01]

𝐵𝑘 = 422,354.73

The outstanding balance is ₱𝟒𝟐𝟐, 𝟑𝟓𝟒. 𝟕𝟑

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

𝑗 = 𝑖(12)

12=

0.12

12= 0.01

n = mt = (12)(20) = 240

Find: Regular Payment R =?

Using the formula 𝑃 = 𝑅 [1−( 1+𝑗)−𝑛

𝑗]

Then 𝑅 = [𝑃

1−( 1+𝑗)−𝑛

𝑗

]

𝑅 = [3,200,000

1−( 1+0.01)−240

0.01

]

𝑅 = 35,234.76

EXAMPLE 2.

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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.

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

Note:

Students may be surprised to learn that much of what is being paid is for the interest.

This is particularly true if a loan is being paid over a long period of time.

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WHAT IS IT…

Activity :

Direction: Answer the following questions. Write your

answers in a separate sheet of paper.

A. 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.

B. Solve the following problems completely.

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?

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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

Consumer loans are loans given to individuals for personal or family purpose while business

loans are loans for businesses. Consumer loans and business loans may require a collateral.

The col- lateral for both loans may be real estate or other investments. For business loans, they

can use equipment, fixtures or furniture as collateral. Consumer loans do not usually require a

guarantor. Business loans require the business owners to sign as guarantors. For consumer

loans, the bank or the lending institution may require a credit report, bank statements, and an

income tax return, and if the lendee is employed, a certificate of employment and employee

pay slips. For business loans, the lendee has to submit a credit

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

A mortgage is a business loan or a consumer loan that is secured with a collateral. Collaterals

are assets that can secure a loan.

The mortgagor, the borrower in a mortgage, still has the right to possess and use the

mortgaged property. In the event that the mortgagor does not make regular payments on the

mortgage, the mortgagee or the lender in a mortgage can repossess the mortgaged property.

The most common type of mortgage is the fixed-rate mortgage wherein the interest remains

constant throughout the term of the loan.

Outstanding balance of a loan is the amount of the loan at this time. One method to compute

the outstanding balance is to get the present value of all remaining payments. This method is

called the prospective method.

WHAT I HAVE LEARNED

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Assessment After our lesson, let us now check what you have

learned.

Direction: Answer the following questions. Write your

answers in a separate sheet of paper.

A. Identify whether following is a business loan or consumer loan.

1. Mr. Lim wants to have another branch for his cellphone repair shop. He decided to

apply for a loan that he can use to pay for the rentals of the new branch.

2. Trillas runs a trucking business. He wants to buy three more trucks for expansion of

his business. He applied for a loan in a bank.

3. Mrs. Alonzo decided to take her family for a vacation. To cover the expenses, she

decided to apply for a loan.

4. Glenn decided to purchase a condominium unit near his workplace. He got a loan

worth P2,000,000

5. Mr. Galang purchased renovated her house P80,000. This was made possible

because of an approved loan worth P75,000.

B. Solve the following problems completely.

1. A family obtained a P1,000,000 mortgage. If the monthly payment is P38,000 for

four years, how much is the total interest paid?

2. Mr. Canlapan obtained a 10-year mortgage for P4,200,000. If his monthly payment

is P39,500 , how much is the total interest?

3. Mr. Ramos is considering to pay his outstanding balance after 3 years of payment.

The original amount of the loan is P100,000 payable annually in 5 years. If the interest

rate is 10% per annum and the regular payment is P26,379.75 annually, how much is

the outstanding balance after the 3rd payment?

4. Ms. Saya got a business loan worth P900,000. She promised to pay the loan semi-

annually in 3 years. The semi-annual payment is P183,026.37 if money is worth 12%

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converted semi-annually. How much is the outstanding balance after the first

payment?

5. A consumer loan worth P30,000 is to be repaid in 12 months at 9% convertible

monthly. How much is the monthly payment?

1. A 6. B 11. C

2. B 7. D 12.A 3. C 8. B 13. D 4. D 9. A 14. C 5. A 10. D 15. A

A. B. 1. BUSINESS LOAN 1. ₱933,120.00

2. CONSUMER LOAN 2. ₱1,960.00

3. CONSUMER LOAN 3. ₱1,275,000.00 4. BUSINESS LOAN 4. ₱880,000.00 5. BUSINESS LOAN 5. ₱2,240,000.00

KEY ANSWERS

PRE-TEST

ACTIVITY

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A. B.

1. BUSINESS LOAN 1. ₱824,000.00

2. BUSINESS LOAN 2. ₱540,000.00 3. CONSUMER LOAN 3. ₱45,783.04 4. CONSUMER LOAN 4. ₱770,973.65 5. CONSUMER LOAN 5. ₱2,623.54

REFERENCES:

General Mathematics Book pg. 305-318 C & E Publishing, Inc. By: GRACE OBIAS-AOANAN, MA.LOURDES PIDOR-PLARIZAN, BEVERLY TABAY-REGIDOR AND LOLLY JEAN CARUPO-SIMBULAS General Mathematics pg. 253-267 TEACHING GUIDE FOR SENIOR HIGH SCHOOL COMMISSION ON HIGHER EDUCATION IN COLLABORATION WITH THE PHILIPPINE NORMAL UNIVERSITY

ASSESSMENT