8
     8
      Instalment Purchases
                    Learning Outcomes
     By the end of this chapter, you should be able to
     ✔ explain the meaning of instalment purchases
     ✔ understand how the interest rate is charged on the           
         original balance and the reducing balance of credit
     ✔ compute the interest rate charged on the original
         balance of credit
     ✔ compute the interest rate charged on the reducing
         balance of credit, and
     ✔ compute the outstanding balance and unearned
         interest of the lender under the Rule of 78.
    Business Mathematics for UiTM (Sixth Edition)               All Rights Reserved
    © Oxford Fajar Sdn. Bhd. (008974-T), 2019                             8–3
                          8.1 Introduction
        In an instalment purchase, a down payment is 
            made, followed by a series of regular payments.
        Instalment buyers are actually paying more than 
            the cash price. 
        The difference between cash price and 
            instalment payment is the interest instalment 
            buyers  have to pay for the credit given to them 
            by the seller (unpaid balance), plus insurance 
            and finance charges.
     Business Mathematics for UiTM (Sixth Edition)                                 All Rights Reserved
     © Oxford Fajar Sdn. Bhd. (008974-T), 2019                                                   8–4
                  8.2 Interest Charge Based on 
                  Original Balance
      The original balance is given by
            Original balance = Cash price – Down payment
      The total amount paid in an instalment plan is called 
        instalment price
        Instalment price = Cash price + Total interest
                          OR
            Instalment price = Down payment + Total monthly 
                                                    payment
      Monthly payment = Original balance + Total interest 
                                 Number of payments)
    Business Mathematics for UiTM (Sixth Edition)       All Rights Reserved
    © Oxford Fajar Sdn. Bhd. (008974-T), 2019                    8–5
                8.2 Interest Charge Based on 
                Original Balance (Cont.)
    Example 8.1
    Jenny bought a refrigerator listed at RM800 cash 
    through an instalment plan. She paid RM100 as a 
    down payment. The balance was settled by making 
    ten monthly instalments. If the interest rate charged 
    was 8.5% per annum on the original balance, find the
           a) total interest charged,
           b) instalment price, and
           c) monthly payment.
    Business Mathematics for UiTM (Sixth Edition)   All Rights Reserved
    © Oxford Fajar Sdn. Bhd. (008974-T), 2019               8–6