KIDAPAWAN CITY DIVISION

KIDAPAWAN CITY NATIONAL HIGH SCHOOL

SENIOR HIGH SCHOOL DEPARTMENT

SIMPLIFIED SELF-LEARNING MODULE IN GENERAL MATHEMATICS

Basic Concepts of Loans
Quarter 2 Module 6

Name: ___________________________________________ Grade and Section: __________________

School: __________________________________________ LRN: _____________________________
Subject Teacher: __________________________________

I. OBJECTIVES
1. Define business loan and consumer loan. M11GM-IIf-1
2. Differentiate between business loans and consumer loans. M11GM-IIf-2
3. Solve problems involving business and consumer loans. M11GM-IIf-3

II. SUBJECT MATTER/ TOPIC AND CURRICULUM GUIDE

a. Content: Business Loans and Consumer Loans
b. Content Standard: Key Concepts of Business Loans and Consumer Loans
c. References: Teaching Guide for SHS Gen Math pp. 253-266, Gen Math Learner’s Material pp. 225-239

III. PROCEDURE
BUSINESS LOANS AND CONSUMER LOANS

Innovative financing is designed to fuel your business. There are numbers of elements when
determining the purpose of the loan. The first is whether the loan is primarily for a business or commercial
purpose, or if it is primarily for a consumer purpose.
With the traditional business loan, you can borrow a lump sum of money and repay it over the next
several years with the corresponding interest. A mortgage is a loan in which property or real state is used as
collateral, that the borrower is obliged to pay back with a predetermined set of payments.

Definition of terms
• Business Loan - a money lent to an individual intended specifically for business purposes. It may be
used to start a business or to have business expansion.
• Consumer Loan -defined as money, goods or services provided to an individual in the absence of
immediate payment for personal or family use.
• Collateral - a borrower’s pledge of specific property to a lender, to secure repayment of a loan. It
may be real-estate or other investments.
• Term of the Loan - a maturity date to pay the entire loan in a regular payments over a set period of
time

Business Loans and Consumer Loans are distinguished based on the following:

• Business Loans are loans for businesses while Consumer Loans are loans given to individuals for personal
or family purpose.
• Business Loans and Consumer Loans may require a 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 owner 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 return and company’s financial
statement.
• The term of a business loan is generally shorter than the consumer loan.
• The interest rate for business loan is usually higher than the consumer loan.

Activity 1. Identify the following, whether the transactions illustrate a business loan or a consumer loan.
1. Mr. Cruz plans to have another branch for his cellphone repair shop. He applied for a loan that he can use to
pay for the rentals of a new branch
2. Ms. Vida engage in a trucking business. He applied a loan in a bank to buy three more trucks to expand his
business.
3. Mrs. Omicron planned to take her family for a summer vacation. To cater the expenses, she decided to
apply for a loan in a bank worth P80,000.
4. Bing decided to purchase a mini hotel near his workplace. He got a loan worth P1,000,000.
SSLM Writers:
Lavin S. Blanco, Jennylee V. Pun-an, Jeasza May Claire J. Porras
Nixon B. Barrete, Nicanor D. Butal, Edmund H. Hernandez
Page 1 of 5 General Mathematics
Grade-11
 5. Adonis applied for a salary loan in a bank worth P60,000 for the renovation of their residential house.
6. Terrence owned a computer shop having 5 computer units. He borrowed a certain amount of money from
the bank to buy an extra computer for personal use.
7. Vilma own a food cart business. She wants to put another food cart in a new mall in another city. She
availed a loan to establish the new business.
8. Mr. Valencia wants to make some improvements on his apartment. He borrowed a certain amount of money
from a bank to build another room for his client.
9. Mr. and Mrs. Ching want to borrow money from the bank to finance the college education of their son.
10. Mr. Ivans plans to put up a vulcanizing shop. He wants to borrow some money in the bank in order for him
to buy the tools and equipment.

Solving Problems Involving Business and Consumer Loan (Amortization and Mortgage)

Definition of terms
• 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

Mortgage
A mortgage is a business loan or consumer loan secured with a collateral. Collaterals are assets that can
secure a loan. If a borrower cannot pay the loan, the lender has the 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 mortgage property
or as a collateral.

To solve problems involving business and consumer loans, we have these examples:

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?
Solution: Given: P = 1,000,000 n=1
j = 0.07 F=?
Formula: 𝐹 = (1 + 𝑗)𝑛
= 1,000,000 (1 + 0.07)
= 1,070,000
Therefore, the amount paid after one year is P1,070,000.

Example 2. Liam borrowed P1,200,000 for the purchase of a car. If his monthly payment is P31,000 in a 5-year
mortgage. Find the total amount of interest.
Solution: Given: P = 1,200,000 monthly payment = 31,000

The total amount paid is given by

Total Amount = (31,000)(12 months)(5years)
= 1,860,000
Thus, the total interest is the difference between the total amount paid and the amount of mortgage:
Total interest = 1,860,000 - 1,200,00
= 660,000
Therefore, the total interest of the 5-year mortgage is P660,000.

Example 3. Ms. Amelia bought a car. After paying the down payment, the amount of the loan is P400,000 with an
interest rate of 9% compounded monthly. The term of the loan is 3 years. How much is the monthly
payment?
Solution: Given: P = 400,000
𝑟𝑎𝑡𝑒 0.09
j = 12 = 12 = 0.0075
n = 36 (# of months in 3 years)
Find: the regular payment R.
𝑃 400,000
R= −𝑛 = −36 = 𝐏𝟏𝟐, 𝟕𝟏𝟗. 𝟖𝟗
1 − (1 + 𝑗) 1 − (1 + 0.0075)
𝑗 0.0075

Therefore, the regular payment is P12,719.89.

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Example 4. 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

Amortization

Amortization is the process of paying a loan and its interest through series of regular equal payments. A loan to
be paid using this scheme is described as amortization loan.

Formula for Finding Payments on 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 5. An amortized car loan of P1,000,000 for purchasing a brand new car is granted to Mr. Avila by a bank. If
the loan is to be paid in 5 years at an annual interest rate of 12%, find the monthly amortization.

Solutions:

The number of payments to be made is n = 12 x 5 years = 60 payments.

12%
The monthly interest rate is i = = 1% = 0.01
12

The principal is P = P1,000,000.

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

(1+𝑖)𝑛 −1
𝑃 (1 + 𝑖)𝑛 = R 𝑖

(1+0.01)60 −1
1,000,000 (1 + 0.01)60 = R 0.01

1,816,969.699 = R (81.66966986)

1,816,969.699
R=
81.66966986
R = 22,244.45

Hence, Mr. Avila will pay P22,244.45 a month for 60 months.

Example 6. A smartphone was bought at an amortized loan of Php 20, 000 with 18% annual interest to be paid in 5
months.
a. Find the monthly amortization
b. Construct an amortization schedule for this loan
Solution:
a. Since monthly amortization is desired, the number of payments to be made is n = 5 payments.
The monthly interest rate is 𝑖 = 18%/12 = 1.5% = 0.015.
The principal is P = 20,000.
Substituting these values to the formula for finding payments on an amortized loan gives
(1 + i)n -1
P(1 + i)n = R [ ]
i
(1 + 0.015)5 -1
20,000(1 + 0.015)5 = R [ ]
0.015
21,545.68008 = R[5.152266925]
21,545.68008
R= = 𝟒, 𝟏𝟖𝟏. 𝟕𝟗
5.152266925

Hence, the monthly amortization for 5 months is Php 𝟒,𝟏𝟖𝟏.𝟕𝟗.

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 b. At the end of the first month, the balance of Php 20, 000 will be charged 1.5%.
The monthly amortization as computed, is Php 4,181.79.
The amount of simple interest paid (which has been included in the monthly amortization) is
Amount of interest = Prt
Amount of interest = (Php 20,000)(0.0015)(1)
Amount of interest = Php 300.

The amount applied to the principal is the monthly amortization less than the paid interest. Thus, the
amount applied to the principal is

Php 4,181.79 – Php 300 = Php 3,881.79

The balance for the second month is technically the amount being loaned at 1.5% monthly interest.
This is simply the difference of the previous balance minus applied to the principal. That is,

Php 20, 000 - Php 3, 881.79 = Php 16, 118.21

The complete amortization schedule is given below.

Payment Amount of Interest Payment Applied to Balance

Number Payment Principal
0 20,000.00
1 4,81.79 300 3,881.79 16,118.21
2 4,81.79 241.77 3,940.02 12,178.19
3 4,81.79 182.67 3,999.12 8,179.07
4 4,81.79 122.69 4,059.10 4,119.97
5 4,81.79 61.80 4,119.99 0.02
The amount Php 0.02 indicates overpayment. In actual financing situation, the discrepancy is adjusted
to have an exact payment, or zero balance.

ASSESSMENT

A. Tell which of the following illustrate a business loan or consumer loan. Write capital letter B that would
represents business loan and a capital C for a consumer loan.

1. Ben wants to celebrate her birthday in Miami. He applied for a loan to cater these expenses.
2. An actor bought a condominium house near his house. He got a loan worth P2,000,000 in a bank.
3. Mr. Ambot want to borrow money from the bank to finance the college education of his son.
4. Ms. Andres wants to renovate their 10-year old house. She wants to build a new room for her 13-year old
daughter. She would like to borrow money from the bank to finance her plan.
5. Martha owns 6 units computers in her computer shop. She decided to borrow some money from the bank to
buy 10 more computers.

B. Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

6. Which of the following does NOT illustrate a consumer loan?

A. Your mother applied for an emergency loan to buy food and kitchen wares.
B. Borrowed money in a bank to expand your computer shop.
C. Applied a salary loan for educational purposes.
D. He engaged tutorial services and applied for a loan in a bank to buy books for himself.

7. If a house is sold for P1,700,000 and the bank requires 40% down payment, how much is the morgage
amount?
A. P1,200,000 B. P1,220,000 C. P1,020,000 D. P1,000,200

8. A house costs P150,000 and you give 10% down payment. What is the amount of your mortgage?
P145,000 B. P135,000 C. P125,000 D. P130,000

9. What loan does not require a guarantor?

A. short term loan B. long term loan C. business loan D. consumer loan

10. A thing that is borrowed, especially a sum of money that is expected to be paid back with interest.
A. loan B. payment C. capital D. interest

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 11. The money lent specially for business purpose.
A. business loan B. consumer loan C. short term loan D. long term loan

12. Mr. Levi got a P700,000 loan for the expansion of his business payable monthly in 4 years. How much is
the monthly amortization if the rate is 12% compounded monthly?
A. P18,433.68 B. P19,345.21 C. P17,456.22 D. P19,647.58

13. From problem #7, How much is the interest in the 5th payment?
A. P1,487.55 B. P1,855.23 C. P1,765.25 D. D. P1,548.78

14. A consumer loan worth P30,000 is to be paid in 12 months at 9% convertible monthly. How much is the
monthly payment?
A. P2,489.52 B. P2,547.58 C. P2,623.54 D. P2,784.52

15. Ms, Aya 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% converted semi-annually. How much is the
outstanding balance after the first payment?
A. P770,973.65 B. P769,054.45 C. P775,542.52 D. P745,563.75

ENRICHMENT. Fill Me Up!

A loan amounting to P10,000 is to be paid annually for 4 years with an interest rate of 5% compounded
annually. The annual amortization is P2,820.11. Complete the following table, and be guided by the question
below.

Period Regular Payment Compound Interest Principal Outstanding

(R) Balance
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
TOTAL 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 rd payment?
I. How much should be the entry in the outstanding balance after the last payment?

1. B 2. B 3. B 4. B 5. C 6. C 7. B 8. B 9. C 10. B

Activity 1

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