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SELF-LEARNING HOME TASK (SLHT)

Subject: General Mathematics Grade Level 11 Quarter 2 Week 6

MELC: illustrate business and consumer loans Competency Code : M11GM-IIf-1

distinguish between business and consumer loans M11GM-IIf-2
solve our problems involving business and consumer loans (amortization, mortgage) M11GM-IIf-3

Name Section: Date:

School District:

A. Readings/Discussions

Lesson 1 BUSINESS AND CONSUMER LOANS

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 collateral. The
collateral 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 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.

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.

Example
1. Mr. De Castro 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.
Solution.Businessloan
2. Mr and Mrs Bautista wants to borrow money from the bank to finance the college education of their
son.
Solution.Consumerloan
3. Mr. Dela Cruz 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.
Solution.Consumerloan
4. Mr. Ramos 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.
Solution.Businessloan
5. Pedro has a computer shop. He owns 6 computers. He decided to borrow some money from the
bank to buy 10 more computers.
Solution.Businessloan

Lesson 2 Solving Problems on Business and Consumer

A mortgage is a business loan or a consumer loan that is secured with 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
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
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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:
● Amortization Method – method of paying a loan (principal and interest) on instalment basis,
usually of equal amounts atregularintervals.
● Mortgage – a loan, secured by 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

Example
1. Mr. Garcia borrowed P1,000,000 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?

Given: P = 1 000 000 j = 0.07 n=1

Find F
Solution:
n 1
F = P(1+j) = 1 000 000 (1+0.07) = 1 070 000
An amount of P1 070 000 must be paid after one year.

2. (Chattel mortgage). A person borrowed P1,200,000 for the purchase of a car. If his monthly
payment is P31,000 on a 5-year mortgage, find the total amount of interest.

Given: P = 1,200,000 Monthly payment = 31,000

Solution:
The total amount paid is given by
Total Amount = (31,000)(12 months)(5 years) = 1,860,000
Thus, the total interest is the difference between the total amount paid and the
amount of the mortgage;
Total Interest = 1,860,000 – 1,200,000 = 660,000
Thus, the total interest is P660 000.

3. 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 = down payment rate x cash price
= 0.20(3,000,000)
= 600,000
Amount of the Loan = cash price - down payment
= 3,000,000 – 600,000
= 2,400,000
The mortgage amount is P2 400 000

OUTSTANDING BALANCE

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.

Time Diagram:
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We use the symbol Bk to denote the outstanding balance after k payments. (the “P”
stands for “prospective”)

Example:
1. 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?
(12) 0.12
Given: R = 11 122.22 i(12) = 0.12 j= i = = 0.01
12 12
k = 12 no. of payments paid
n– k= 48 since only 48 payments remain
Find : Present value of 48 future payments (since there are 48 payments left)
Solution:

[
Bk = R
1-(1+j)
j
-(n-k)

]
Bk = 11 122.22
[1-(01.+001.01)-4
]
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Bk = 422 354.73
The outstanding balance is P422 354.73.

2. 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:
i (12)
a. Given: P = 3 200 000.00 i(12) = 0.12 j= 0.12
12 = 12 = 0.01 n = mt =
n = mt= 12(20) = 240
Find: Regular Payment R

[ ]
-n
1-(1+j)
Using the formula P=R

[ ]
j
1-(1+0.01)-240
Then 3 200 000 = R 0.01

R=
[
3,200,000
1-(1+0.01)
0.01
R = 35 234.76
-240
]
Therefore, the monthly payment is P35 234.76.

b. Given : P = 3 200 000 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.

Additional Examples:
Complete the following table, and be guided by the questions below.
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Period Regular Interest Principal Outstanding

Payment R Component of Component of Balance
Payment Payment
0 A
1 B 500 2,320.11 7,679.56
2 2,820.11 F G 5,243.54
3 2,820.11 262.18 2,557.93 H
4 2,820.11 134.29 2,685.82 I
TOTALS C D E

A. How much is the amount of the loan? (outstanding balance at period 0)

B. How much is the first annual payment?
C. How much is the total amount of payment?
D. How much is the total interest paid?
E. How much is the total payment for the principal?
F. For the second payment, how much goes to pay the interest?
G. For the second payment, how much goes to pay the principal?
H. How much is the outstanding balance after the 3 payment?
I. How much should be the entry in the outstanding balance after the last payment?

Solution.
A. The amount of the loan is ₱ 10,000, and this is the outstanding balance at time 0. B. All
payments are the same, so the answer is ₱ 2,820.11.
C. The total amount paid is (4)(P2820.11)= ₱ 11,280.44.
D. The total interest paid is = Total paid–Total payment
= 11,280.44 –10,000= ₱ 1,280.44
E. The total payments for the principal must be equal to the loan amount ₱ 10,000.
F. The outstanding balance after one payment is given in the table (₱ 7,679.56). This
amount will be charged 5% interest:
2 = ( 1) = (0.05)( 7,679.56) = ₱ 383.98
G. The amount of the second payment that goes to pay the principal is
PR2 = R – 2 = 2,820.11 – 383.98 = ₱ 2,436.13
H. Since, after the third payment, there is only 1 remaining payment. The outstanding balance
after the third payment is given by

[
Bk = R j ]
1-(1+j)-(n-k)

1-(1.05) 1
Bk = 2,820.11[ 0.05 -
]
= ₱ 2,685.82
I. Since all payments are made already, the outstanding balance should be 0.
B. Exercises

Exercise 1: IDENTIFICATION

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.
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Exercise 2 ANALYSIS

Directions: Answer the questions that follow comprehensively:

1. How do you differentiate business loans and consumer loans?

2. 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
Opt ion 2: A monthly payment of ₱14,600.00 for five years

Which of the two options will you take? Why?

C. Assessment/Application/Outputs (Please refer to DepEd Order No. 31, s. 2020)

I. Directions: Choose the letter that corresponds to the correct answer.

1. A money lent to an individual for a business purpose is called .

a. Business Loan b. Consumer Loan c. Collateral d. Loan
2. The assets used to secure the loan is called .
a. Asset b. Loan c. Collateral d. Payment
3. A loan, secured by a collateral, that the borrower is obliged to pay at specified terms.
a. Mortgage b. Chattel Mortgage c. Collateral d. Amortization
4. A mortgage on a movable property.
a. Mortgage b. Chattel Mortgage c. collateral d. Amortization
5. Any remaining debt at a specified time.
a. Amortization c. balance
b. mortgage d. outstanding balance
6. A method of paying a loan (principal and interest) on installment basis, usually of
equal amounts at regular intervals.
a. amortization c. balance
b. mortgage d. outstanding balance
7. A loan of ₱ 425,000 is to be repaid in full after 3years. If the interest rate is 9% per
annum. How much should be paid after 3 years?
a. ₱ 550,387.33 c. ₱ 356,430
b. ₱ 437, 452.18 d. ₱ 286,907
8. If a car loan of ₱ 680,000 requires a 18% down payment. How much is the
mortgage?
a. ₱ 122,400 c. ₱ 383, 060
b. ₱ 221,040 d. ₱ 557,600
9. A consumer loan of ₱ 200,000 is to repay in monthly installment for 1 year. How much is
the monthly payment if money is worth 1.5% converted monthly?
a. ₱ 16,802.39 c. ₱ 100,814.36
b. ₱ 33,604.78 d. ₱ 201,628.72
10. Mr. and Mrs. Banal purchased a house and lot worth ₱ 4,000,000. They paid a down
payment of ₱ 800,000. They plan to amortize the loan of ₱ 3,200,000 by paying monthly
for 20 years. The interest rate is 12% convertible monthly. What is the total interest paid?
a. ₱ 35,234.76 c. ₱ 3,200,000
b. ₱ 58,914.78 d. ₱ 5,256,342.40

II. Directions: Solve each problem. Show complete solution.

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, much is
the total interest paid?
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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?

D. Suggested Enrichment/Reinforcement Activity/ies

Study the amortization schedule and fill in the blanks. A loan amounting to P100,000 is to be paid
annually for 4 years with an interest rate of 10% per annum. The annual amortization is ₱ 31,547.08 of
Payment.

A. How much is the amount of the loan?

B. How much is the payment on the first period?
C. For the second payment, how much goes to pay the interest?
D. For the second payment, how much goes to pay the principal?
E. How much is the outstanding balance after the 4 payment?

References:

Dimasuay, L.A., Alcala, J., Palacio, J.,(2016). General Mathematics for Senior High School. Quezon City,
Philippines: C & E Publishing Inc.

Crisologo, L., Hao, L., Miro, E., Palomo, E., Ocampo, S., and Tresvalles, R. GeneralMathematics
Teacher’sGuide. Department of Education- Bureau of Learning Resources, Ground Floor
Bonifacio Bldg, DepEd Complex Meralco Avenue, Pasig City, Philippines 1600. Lexicon Press Inc.
(2016). blr.lrpd@deped.gov.ph.

Prepared by:
MA. BUKCEMAS D. CAHUTAY
Teacher III
Juan Pamplona NHS