Example 2. Life cycle of a 60-month loan. This graph shows the life cycle of a 60-month vehicle loan, with dollar values on the Y-axis and number of months in the loan on the X-axis. There are two lines. The first is a slightly convex downward line that shows the loan balance declining from $24,000 at the beginning of the loan down to $0 at the end of 60 months. The second line is a downward-curving concave line that shows the value of the vehicle declining from about $19,000 to about $8,000. The two lines cross at about month 36. Before this point, the loan balance is higher than the vehicle value; after month 36 the vehicle value is higher than the loan balance. The difference after month 36 is shown as a shaded area called the consumer’s equity in the vehicle.
Loan Inputs:
Amount financed $24,000.00
Ending balance $0.00
Term 60 months
Monthly payment $486.63
Note: The Constant Yield (Actuarial) method is used for the loan amortization.
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