Republic of the Philippines

Department of Education
Regional Office IX, Zamboanga Peninsula

11 Zest for Progress

Z Peal of artnership

General Mathemetics
Quarter 2 - Module 6:
Business and Consumer Loan

Name of Learner: ___________________________

Grade & Section: ___________________________
Name of School: 1 ___________________________
General Mathematics
Alternative Delivery Mode
Quarter 2 – Module 6: Business and Consumer Loan
First Edition, 2020

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work of the Government of the Philippines. However, prior approval of the
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authors do not represent nor claim ownership over them.

Development Team of the Module

Writer’s Name: MARILOU C. LERIA

Editor’s Name: PACIANO E. RECABO

Reviewer’s Name: ISMAEL K. YUSOPH

Management Team: MA. LIZA R. TABILON, Ed. D., CESO V

LOURNA I. POCULAN, Ed.D.

LILIA E. ABELLO, Ed.D.

EVELYN C. LABAD

MA. THERESA M. IMPERIAL

NORALYN R. SABANAL

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 11
General Mathematics
Quarter 2 – Module 6:
Business and Consumer Loan

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 Business and
Consumer Loan

What I Need to Know

This module will illustrate the conceptual and computational know-how about
business and consumer loans. You will be able to understand the definitions of and
the differences between business and consumer loans. Moreover, you will be solving
real-life problems involving business and consumer loans, and how these financing
options affect the financial decision-making process of a company or an individual.

After going through this module, you are expected to:

1. illustrate business and consumer loans;
2. distinguish business loan from consumer loans; and
3. solve problems involving business and consumer loans(amortization,
mortgage).

What’s In
What is the difference between bonds and loans?
The main difference between a bond and loan is that a bond is highly tradeable. If
you buy a bond, there is usually a market where you can trade bonds. Loans tend
to be agreements between banks and customers. Loans are usually non-tradeable,
and the bank is obliged to see out the term of the loan.
 A bond is a type of debt instrument. It is a way for a company or
government to raise money by selling, in effect, IOUs – with annual
interest payments.

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  A loan is also a debt instrument, usually provided by a private bank
with a variable interest rate.

What’s New

Identify whether the following is business or consumer loan:

Example1. 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
barber shop.

Example 2.Mr. De Villa wants to have improvements of their 12-year old house. He
wants to build a new room for their 10 year old daughter. He will borrow some money
from the bank to finance this plan.

What is It
In example 1 above, the answer is business loan. What is business loan? A
business loan is a loan specifically intended for business purposes. As with all loans,
it involves the creation of a debt, which will be repaid with added interest. A business
loan is borrowed capital that companies apply toward expenses that they are
unable to pay for themselves. Some business owners use business loans to pay for
salaries and wages until their new company gets off the ground, while other
companies put borrowed funds toward office supplies, inventory or business
projects. Lenders want to know how the business intends to use the borrowed
monies, so business owners must make sure to have a clear outline for how the
money will be spent. It may be used to start a business or to have a business
expansion.
There are different types of business loans. The following are the types of
business loans in the Philippines:
1. Corporate loan- a loan being availed by top corporation whose purpose is to
finance their projectsor expand their respective business.(In the Philippines, these
are usually the top 1 000 corporations.) Corporations are usually provided by the

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banks with credit line depending on their size, liquidity,profitability and other factors
deemed by banks as necessary.
2. Commercial loan- a loan being availed by commercial businesses that are not as
big as the top1 000 corporations. These commercial businesses are leveraging the
value of loans for the growthand financing of their respective businesses.
3. SME(Small and Medium Enterprises)loan- a loan being availed by SMEs which
are usuallyentrepreneurs or start-up businesses. They usually use the funds for their
capital and operational expenditures. Some banks even established a microfinance
subsidiary to cater to the unbanked(those who do not have a bank account) and the
under-banked(those who have accountsbut do not maximize their use) to help boost
the economy.
Banks are considered the primary lenders to the types of business mentioned
above. Philippine banks have segmented their loan organizations according to the
type of business customer they serve. Thus, banks have a Corporate Banking Unit,
Commercial Banking Unit, or SME Loans Unit. They basically have the same
function, but it gets more complex depending on the type of business customer they
are catering.
The following collaterals are usually being accepted by Philippine banks for
business loans aside from the company’s financial and industrial conditions.
1. Investment in government securities and stocks
2. Different forms of real state
3. Deposit accounts with loan provider and other banks
4. Standby letter of credit
5. Updated financial statements
Going back to the example 2 in the previous activity, the answer is consumer
loan.What is consumer loan?A consumer loan is a loan given to consumers to
finance specific types of expenditures. In other words, a consumer loan is any type
of loan made to a consumer by a creditor. The loan can be secured (backed by the
assets of the borrower) or unsecured (not backed by the assets of the
borrower).Money lent to an individual for personal or family purpose. Lending to retail
customers or individuals is not much different from business loans. In the context of
marketing, it is just a matter of segmentation in which the loan product features are
geared toward the demographics, psychographics, and behavior of the primary
target market.

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Secured vs. Unsecured Consumer Loans
Secured consumer loans are loans that are backed by collateral (assets that
are used to cover the loan in the event that the borrower defaults). Secured loans
generally grant the borrower greater amounts of financing, a longer repayment
period, and a lower charged interest rate. As the loan is backed by assets, the risk
faced by the lender is reduced. For example, in the event that the borrower defaults,
the lender would be able to take possession of collateralized assets and liquidate
them to repay the outstanding amount.
Unsecured consumer loans are loans that are not backed by collateral.
Unsecured loans generally grant the borrower a limited amount of financing, a
shorter repayment period, and a higher charged interest rate. As the loan is not
backed by assets, the lender faces increased risk. For example, in the case of
borrower default, the lender may not be able to recover the outstanding loan amount.
The following are the types of consumer loans in the Philippines:
1. Housing or mortgage loan-one of the most common retail loan products as all
banks offer this type of loan. A house is a type of real property. Real state or real
property is defined as land plus all the permanent improvements to the land. The
purpose of a mortgage loan is to finance a new house and lot or a condominium unit
for residential purposes. Banks usually just lend a percentage of the market value of
the loaned housing or condominium unit. Common housing loan approval in
percentage ranges from 60% to 90% of the selling price of the house and lot or
condominium unit.
2. Auto or car loan- another common loan product wherein the purpose of the loan
is to finance a brand newcar or a second-hand car. Almost the same rules are
applied to a car loan except that the loan term is usually shorter compared to a
housing loan(ranging 3 to 5 years).
3. Salary or personal loan- a loan product being offered to employed individuals.
Here, the collateralis the contract of employment. Banks usually have salary loan
arrangements with their corporate customers.Terms are shorter which usually range
from 1 to 3 years.
4. Credit card- a credit facility that major banks are offering to qualified individuals or
corporations. This card can provide the retail or corporate customers with a credit
limit that they can use for daily expenses and other major purchases. When availed,

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interest is way higher than housing or auto loans. Interest rates for credit cards in the
Philippines range from 3% to 5% per month or 36% to 60% per year.
The following collaterals are required before a retail customer can avail
of a particular type of loan:
• House and lot loan- Transfer Certificate of Title
• Condominium loan- Condominium Certificate of Title for Housing
• Car loan- Official Receipt/Certificate of Registration(OR/CR)
• Salary loan, personal loan, and credit card- employment contract, pay slips, and
Income Tax Return. These loans are considered unsecured since the lender has
nothing to get if the borrower defaults, unlike collaterals which are considered as
assets.
Consumer credit is the term used for a type of loan that is offered to
business and individuals or other retail customers. These loans are usually paid
through a series of regular payments or installment with imputed interest. The
repayment of a loan in equal installments that are applied to the principal and
interest over a period of time is called the amortization of a loan.
In a loan transaction, there are four factors that need to be considered:
1. Cash price- the price paid all at once at the time of the purchase
2.Down payment- fractional payment to the loan
3. Amount financed- total amount granted by the lending institution to pay off the
balance
4. Installment price- includes all instrument payments, finance charges, and down
payment
You also need to be familiar with the 5Cs of Credit to understand the criteria
that lending institutions follow to assess the credit worthiness of a borrower. The
following criteria help lenders methodically decide on whether to grant a loan to a
business or retail customer:
1. Character- In this area, the lender is looking for such things as credit history,
training and knowledge, experience, financial competency, and plans for the
future. In short, the character is the reputation of the borrower.
2. Capacity- This refers to the ability to service the debt, replace assets as they
wear out and provide money for living and possible expansion. In short, capacity is
the ability of the borrower to repay a loan by assessing the income against the
debts of the borrower.

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3. Capital- This is what is left behind a borrower when the liabilities are deducted
from the assets.
4. Collateral- This is the lender’s security in a loan transaction
5.Conditions- These are the commercial terms of a loan transaction such as the
principal amount, interest rate, and the term of the loan.

What’s More

Activity 1: SME Loan: Installment

Franco Tristan Remittance Business, a start-up business, purchased 30
laptops installment plan to support its remittance operations group with a ₱100 000
down payment and 12 monthly payments of ₱80 000.
1. What is the installment price of the 30 laptops?
2. How much interest rate was imputed if the cash price of the 30 laptops is
₱900 000?
3. How much is the interest that the business paid per month?
4. How much from the principal loan was deducted per month?
Solution:
1. Apply the following formula in getting the installment price:
Installment Price= Total of Installment Payments + Down Payment
=(12x₱80 000) + ₱100 000
= ₱960 000 + ₱100 000
= ₱1 060 000
2. Apply the following formula in getting the interest rate: I=PRT
I=₱1 060 000(Installment Price) - ₱900 000(Cash price) = ₱160 000
₱160 000 = (900 000-100 000)(R) (1 year)
I = P R T
R = ₱160 000
₱ 800 000
R = 20%
You can verify the answer by substituting the values in I = PRT:
₱160 000 = ₱800 000(20%)(1year)

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3. Apply the following formula in getting the monthly interest payment:
I = PRT
1
= ₱800 000(20%)(12)
I= ₱13 333.33
4. Apply the following formula in getting the amount of principal paid per month:
Monthly Payment-Monthly Interest Payment = Principal Paid per Month
₱80 000 - ₱13 333.33 = ₱66 666.67
Now it’s your turn!
Norberto Internet Café, a start-up business, purchased 50 personal computers in
installment plan with a ₱50 000 down payment and 12 monthly payments of ₱162
500 for the remaining balance of ₱1 450 000.

a. What is the installment price of the 50 personal computers?

b. How much interest rate was imputed if the cash price of the 50 personal
computers is ₱1 500 000?
c. How much is the interest that the business paid per month?
d. How much from the principal loan was deducted per month?

Activity 2: Corporate Loan

AMDDC Corporation, a real estate company, is one of the top 1 000
corporations in the Philippines. It has a ₱500 000 000 credit line with the Global
Filipino Bank. The annual percentage rate (APR) charged on the account is the
current prime rate plus 5%. There is a minimum APR on the account of 10%. The
starting balance on 1 June 2019 was ₱50 000 000. On 9 June 2019,AMDDC
Corporation borrowed ₱20 000 000 to finance one of its projects in Santa Rosa City.
On June 20, AMDDC made a ₱60 000 000 payment on the account. On June 26,
AMDDC borrowed ₱50 000 000 to finance its operating and capital expenditures.
The billing cycle for June has 30 days. If the current prime rate is 8%, what is the
finance charge on the account and what is AMDDC Corporation’s new balance?
Solution:
To solve this problem, you need to find the following: (a) annual percentage
rate, (b) periodic rate, (c) average daily balance, (d) finance charge, and (e) new
balance.
a. Annual percentage rate (APR): The annual percentage rate is prime plus 5%, with
a minimum of 10%. Because the current prime rate is 8%, the APR on this line of
credit is 13% (8% + 5%).
b. Periodic rate:
Periodic Rate = Annual Percentage rate
12 months
13%
= 12 𝑚𝑜𝑛𝑡ℎ𝑠= 1.083%

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c. Average daily balance:
Dates Number Activity/amount Unpaid Daily Balance
of Days Balance (unpaid balance x
days)
1-8 June 8 Previous balance ₱50 000 000 ₱400 000 000
9-19 11 Borrowed ₱20 000 ₱70 000 000 ₱770 000 000
June 000
20-25 6 Paid ₱60 000 ₱10 000 000 ₱60 000 000
June 000
26-30 5 Borrowed ₱50 000 ₱60 000 000 ₱300 000 000
June 000
Total 30 days ₱1 530 000 000

𝑆𝑢𝑚 𝑜𝑓 𝐷𝑎𝑖𝑙𝑦 𝐵𝑎𝑙𝑎𝑛𝑐𝑒𝑠

Average Daily Balance = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐵𝑖𝑙𝑙𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒
₱1 530 000 000
= 30 𝑑𝑎𝑦𝑠

= ₱51 000 000

d. Finance charge:
Finance Charge = Average Daily Balance x Periodic Rate
=₱51 000 000 x 1.083%
= ₱552 330
e. New Balance:
New Balance = Previous Balance + Finance Charge + Loan Amount – Payments
= ₱50 000 000 + ₱552 330 + ₱70 000 000 - ₱60 000 000
= ₱60 552 330
Now it’s your turn!
RSB Bank, a universal bank, is one of the top 1 000 corporations in the
Philippines. It has a ₱1 000 000 000 credit line with Philippine Bank. The APR
charged on the account is the current prime rate plus 7%. There is a minimum APR
on the account of 10%. The starting balance on 1 July 2019 was ₱400 000 000. On
10 July 2019, RSB borrowed ₱100 000 000 to finance its expansion. On 23 July,
RSB made a ₱200 000 000 payment on the account. On 27 July, RSB borrowed
another ₱500 000 000. The billing cycle for July has 31 days. If the current prime
rate is 8%, what is the finance charge on the account and what is RSB Bank’s new
balance?

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Activity 3: Credit Card: Installment
Bonifacio Bank’s credit card zero-percent installment price of a phablet was
₱38 000 for a 12-month loan. If a ₱5 000 down payments was made, find the
installment payment.
Solution:
Apply the following formula:
Installment Price (IP) = Total of Installment Payments + Down payment
Total of Installment Payments = IP-Down Payment
= ₱38 000 - ₱5 000
= ₱33 000
Therefore, the installment payment(per month) is ₱33 000 ÷ 12 = ₱2 750
Now it’s your turn!
Del Rosario Bank’s credit card zero-percent installment price of a smartphone is ₱30
000 for a 12-month loan. If a ₱3 000 down payment was made,find the installment
payment.

Activity 4:Loan-to-Collateral Ratio

Your dad wants to purchase a new house and lot in Laoag City, so he decided
to apply for a housing loan from the Bank of Vigan using his existing house and lot
as collateral. The bank conducted an appraisal of his existing house and lot and
came up with a ₱2 000 000 appraised value. Your dad will pay the developer 20%
down payment. The fair market value of the new house and lot is ₱1 500 000. What
is the loan-to-collateral ratio?
Solution:
Apply the following formula:
Amount Morgaged
Loan-to-Collateral Ratio =
Appraised Value of Property
₱1 500 000 𝑥 80%
= ₱2 000 000
₱1 200 000
=₱2 000 000

= 60%
Now it’s your turn!
Your mom wants to purchase a new house and lot in San Fernando City, so
she decided to apply for a home loan from Bank of Angeles using her existing house
and lot as collateral. The bank conducted an appraisal of her existing house and lot
and came up with a ₱1 000 000 appraised value. Your mom will pay the developer
30% down payment. The fair market value of the new house and lot is ₱2 000 000.
What is the loan-to-collateral ratio?

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 What I Have Learned
In this module, you gained information about the different kinds of loans
through real-life examples and exercises. You learned that loans are classified as
B2B (Business-to-Business) and B2C
(Business-to-Consumer). You also learned the guidelines that lenders follow in
granting or not granting credit to their customers through the 5 C’s of Credit. You
were able to understand clearly the types of business loans and consumer loans.

What I Can Do
Reflect upon. Write your answer in a separate bondpaper.
1. Knowing the definitions of each type of business loan, what do you think are the
ultimate benefits of business loans from the perspective of the borrower? Why do
a lot of businesses still prefer to borrowmoney despite the cost of borrowing?
2. What do you think are the ultimate benefits of consumer loan from the
perspective of the borrower?
3. Why do consumers still go to lending institutions to purchase assets with high
value despite the cost of borrowing and the long commitment required?

Assessment
A. Write the letter of the correct answer on the space provided.
_________1.This is the lender’s security in a loan transaction.
a. Capital b. Capacity c. Collateral d. Condition
_________2.A loan being offered to employed individuals.
a. Salary loan b. Auto loan c. Mortgage loan d. Car loan
_________3.Fractional payment to the loan
a. Cash price b. Down payment
c. Instalment price d. Amount financed

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_________4.A loan being availed by commercial businesses that are not as big
the top corporations.
a. SME loan b. Car loan
c. Corporate loan d. Commercial loan
_________5.Land plus all the permanent improvements to the land.
a. Real state b. Collateral c. Capital d. Mortgage
_________6. A credit facility that major banks are offering to qualified individuals or
corporations.
a. Credit card b. Collateral c. Mortgage d. Salary
_________7. The repayment of a loan in equal installments that are applied to the
principal and interest over a period of time.
a. Collateral b. Mortgage
c. Installment d. Amortization
_________8. These are the commercial terms of a loan transaction such as the
principal amount, interest rate, and the term of loan.
a. Capital b. Conditions
c. Collateral d. Character
_________9.The reputation of the borrower.
a. Capacity b. Capital
c. Character d. Mortgage
_________10. A loan being availed by top corporations whose purpose is to finance
their projects or expand their respective businesses.
a. SME loan b. Corporate loan c. Commercial loan d. Car loan

B. Solve the following problem. Use a sheet of bondpaper.

Jay wants to purchase a new house and lot in Zamboanga City, so he
decided to apply for a housing loanfrom the Bank of Zamboanga using his existing
house and lot collateral. The bank conducted an appraisal of his existing house and
lot and came up with ₱2 500 000 appraised value. Jay will pay the developer 20%
down payment. The fair market value of the new house and lot is ₱2 000 000. What
is the loan-to-collateral ratio?

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Additional Activities
Go to http://www.euromonitor.com/consumer-lending-in-the-philippines/report
(accessed on 2 May 2015) to read a summary about consumer lending in the
Philippines. Then do or answer the following:
1. Research on the improvements in Filipino borrower profiles for the past 2 years.
2. What were the exact interest rate adjustments and lower minimum salary
requirements thatmainstream lending institutions implemented for the past 2 years.

References
General Mathematics Book by DIWA
General Mathematics Book by REX
www.scinet.dost.gov.ph
www.smallbusiness.chron.com
www.corporatefinanceinstitute.com/resources/knowledge/credit/consum
er-loan/

Answer Key
What I Know
1. d 2. c 3. b 4. a 5. d
What’s More

Activity1) a. Installment Price = Total of Installment + Down Payment

=(12 x ₱162 500) + ₱50 000
= ₱1 950 000 + ₱50 000
= ₱2 000 000
b. I = PRT
I = ₱2 000 000(instalment price) - ₱1 500 000(cash price) = ₱500 000
₱500 000 = ₱1 450 000(R)(1 year)
= ₱500 000(R)
₱1 450 000
R = 34%
c. I = PRT
1
= ₱1 450 000(34%)(12)
= ₱41 083.33
d. Monthly Payment – Monthly Interest Payment = Principal Paid per Month

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 ₱162 500 - ₱41 083.33 = ₱121 416.67
Activity 2) Corporate Loan
a. Annual percentage rate: 8% + 7% = 15%
b. Periodic rate: 15% =1.25%
12 months
c. Average daily balance: ₱510 000 000
d. Finance Charge: ₱6 375 000
e. New Balance:
₱ 400 000 000 + ₱6 375 000 + ₱600 000 000 - ₱200 000 000 =
₱806 375 000
Activity 3) Credit card: Instalment price
₱30 000 - ₱3 000 = ₱27 000
Activity 4) 2 000 000 x 70% =140%
1 000 000
Assessment
A) 1. c 2. a 3. c 4. d 5. a 6. a 7. d 8. b 9. c 10. b
Amount Mortgaged
B) Loan-to-Collateral Ratio =
Appraised Value of Property
₱2 000 000 𝑥 80%
= ₱2 500 000
₱1 600 000
=₱2 500 000
= 64%

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