Amortization Schedule of a Car Loan

Activity Description

In this worksheet, students will analyze the amortization schedule of a car loan with a loan amount of $20,000 and an interest rate of 7%. They will have the option to choose the loan duration as either 3 years or 6 years. The amortization schedule will be presented in both tabular and graphical formats. Students will calculate the percentage of each payment that goes towards the principal and the interest for different months of the payment schedule for both loan durations. This activity aims to enhance students' understanding of amortization and how loan duration affects the distribution of payments.

Activities:

• Introduction to Amortization: Students will receive an overview of amortization schedules and their role in illustrating loan repayment over time.
• Amortization Schedule: Students will be provided with the amortization schedules for a $20,000 car loan with a 7% interest rate, for both 3-year and 6-year durations, in tabular and graphical formats.
• Data Analysis: Students will analyze the amortization schedules to calculate the percentage of each payment that goes towards principal and interest for the different months given.
• Comparison of Loan Durations: Students will compare how the distribution of payments changes over time for the 3-year and 6-year loan durations.
• Reflection: Guided questions will help students reflect on the impact of loan duration on amortization and the financial implications of choosing different loan terms.

Key Learning Outcomes:

• Amortization Schedule Comprehension: Students will understand how amortization schedules work and their significance in loan repayment.
• Principal and Interest Distribution: Students will learn how loan payments are divided between principal and interest and how this distribution changes over time.
• Impact of Loan Duration: Students will understand the effect of loan duration on the total interest paid and the distribution of payments.

Learning Objective

This activity is designed to help students develop a solid understanding of amortization, particularly in the context of a car loan. The primary objectives are to teach students how to read and interpret an amortization schedule, grasp the concept of loan duration and its impact on repayment, and improve their financial literacy regarding borrowing and debt management.

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