Calculating Loan Outstanding Balance Using Present Value Method

in this lesson we are going to be looking at how to calculate the outstanding balance but I would like to

mention that we're going to be using the Present Value method remember there are two ways to do outstanding balance you

can use the Present Value method or the Future Value method if you do not use the Present Value method then rather

skip this video and look at my video on future value in this question we have a person who takes out a loan that needs

to be repaid in 5 years and they give us the interest rate everything looks looks good it's easy they're not they're not

making late payments or anything like that so we so question a says determine the monthly payment so this is very

straightforward we know that this person wants 100,000 Rand and it's a loan guys do when you take out a loan you don't

get the money in the future you get the money on the day that you take out the loan that is called the present this is

why we're using the present value formula so we can say 100,000 equals to the monthly payment which we don't know

the interest rate is 16% which I like to say 016 over 12 and then the number of

payments will just be 5 * 12 which is 60 now there are multiple ways to get X alone over here one way and and as as I

said there are so many ways you could just type all of this on your calculator some students like to take the Z the

this part over here they take it up I actually do it that way but for some reason I just feel like doing it like

this in this lesson now you don't want to round off when you do this method so we'll say 100,000 to

41121 7062 X then you can get X alone on the CIO calculators you could just say 100,000 / answer which will be your

previous answer and we should get an answer of 2,431 r81 cents if we round to two

decimal places now we are going to work out the balance outstanding now if you use the Present Value method you

literally just use the present value form fora and your n value will be the number

of payments that you still need to make guys that is important that you hear what I just said it is the number of

payments that you still need to make not the number of payments that have already happened it's the number of payments

that you still need to make okay so what we do is we go say p equals to now we can use our monthly payment that we've

calculated in the previous question and then the interest rate is 16% that all stays the same now it's a 5-year

question but they want to know what is the balance outstanding after 2 years so guys how many years do we still have

well we still have another 3 years and so 3 * 12 is 36 and that's it the Present Value method for outstanding

balance is quite an easy one but some students do prefer the Future Value method all right and what this tells

this is that the present value is going to be 69,1 16994 and that would be in Rand so what

that technically means is that that's how much money this person still owes on their loan that is how much they still

need to pay to the bank