Answer :
### Solution to the Problem:
#### 2.2.1 Define the Term Loan
A term loan is a type of loan that is granted for a specific amount and repaid according to a specified repayment schedule. The loan is typically repaid in equal monthly installments of principal and interest over a fixed period, or term. The term can vary, often ranging from 1 year to 30 years. In this case, the loan term is 6 years.
#### 2.2.2 How the Loan Amount for Option 1 Was Calculated
In this scenario, Option 1 has a loan amount of R231135. This is the principal amount that Leon borrowed, which is repaid over a period of 6 years with monthly payments of R4290.
#### 2.2.3 Calculate the Total Amount that Leon Will Pay After Six Years for Option 1
For Option 1:
- Loan Amount: R231135
- Annual Interest Rate: 10.25%
- Term: 6 years
- Monthly Repayment: R4290.00
- Monthly Administration Fee: R57.00
- Compulsory Once-Off Payment: R1140.00
- Balloon Payment: R0 (no balloon payment for Option 1)
The total amount paid in monthly repayments over 6 years:
[tex]\[ \text{(Monthly Repayment + Administration Fee) Number of Months} \][/tex]
[tex]\[ \text{(R4290 + R57) 12 6} \][/tex]
[tex]\[ \text{R4347 72} \][/tex]
[tex]\[ = R313,728 \][/tex]
Adding the once-off payment:
[tex]\[ R313728 + R1140 \][/tex]
[tex]\[ = R314868 \][/tex]
So the total repayment for Option 1 amounts to R314124.
#### 2.2.4 Calculate the Total Amount that Leon Will Pay After Six Years for Option 2
For Option 2:
- Loan Amount: R251135
- Annual Interest Rate: 10.25%
- Term: 6 years
- Monthly Repayment: R3905.00
- Monthly Administration Fee: R57.00
- Compulsory Once-Off Payment: R1140.00
- Balloon Payment: 30% of Loan Amount
The balloon payment amount:
[tex]\[ \text{30% of R251135} \][/tex]
[tex]\[ = 0.30 251135 \][/tex]
[tex]\[ = R75340.5 \][/tex]
The total amount paid in monthly repayments over 6 years:
[tex]\[ \text{(Monthly Repayment + Administration Fee) Number of Months} \][/tex]
[tex]\[ \text{(R3905 + R57) 12 6} \][/tex]
[tex]\[ \text{(R3962 * 72)} \][/tex]
[tex]\[ = R285264 \][/tex]
Including the balloon payment and the once-off payment:
[tex]\[ R285264 + R75340.5 + R1140 \][/tex]
[tex]\[ = R361744.5 \][/tex]
So the total repayment for Option 2 amounts to R361744.5.
#### 2.2.5 Calculate the Difference Between the Amounts in 2.3 and 2.4
The total repayment for Option 1 is R314124.
The total repayment for Option 2 is R361744.5.
The difference between these amounts:
[tex]\[ R361744.5 - R314124 \][/tex]
[tex]\[ = R47620.5 \][/tex]
So the difference between the total amounts paid is R47620.5.
#### 2.2.6 Explain Why the Monthly Repayment of Option 2 is Lower than Option 1 Where a Deposit Has Been Paid
The monthly repayment for Option 2 is lower than that for Option 1 primarily due to the presence of a balloon payment. A balloon payment is a large, one-time payment made at the end of the loan term.
In Option 2, 30% of the loan amount will be paid as a balloon payment at the end of the term. This reduces the amount that needs to be repaid via the monthly installments over the term of the loan, resulting in lower monthly payments. However, the total cost of the loan can be higher due to the final balloon payment, which needs to be considered when comparing the overall cost of the two loan options.
#### 2.2.1 Define the Term Loan
A term loan is a type of loan that is granted for a specific amount and repaid according to a specified repayment schedule. The loan is typically repaid in equal monthly installments of principal and interest over a fixed period, or term. The term can vary, often ranging from 1 year to 30 years. In this case, the loan term is 6 years.
#### 2.2.2 How the Loan Amount for Option 1 Was Calculated
In this scenario, Option 1 has a loan amount of R231135. This is the principal amount that Leon borrowed, which is repaid over a period of 6 years with monthly payments of R4290.
#### 2.2.3 Calculate the Total Amount that Leon Will Pay After Six Years for Option 1
For Option 1:
- Loan Amount: R231135
- Annual Interest Rate: 10.25%
- Term: 6 years
- Monthly Repayment: R4290.00
- Monthly Administration Fee: R57.00
- Compulsory Once-Off Payment: R1140.00
- Balloon Payment: R0 (no balloon payment for Option 1)
The total amount paid in monthly repayments over 6 years:
[tex]\[ \text{(Monthly Repayment + Administration Fee) Number of Months} \][/tex]
[tex]\[ \text{(R4290 + R57) 12 6} \][/tex]
[tex]\[ \text{R4347 72} \][/tex]
[tex]\[ = R313,728 \][/tex]
Adding the once-off payment:
[tex]\[ R313728 + R1140 \][/tex]
[tex]\[ = R314868 \][/tex]
So the total repayment for Option 1 amounts to R314124.
#### 2.2.4 Calculate the Total Amount that Leon Will Pay After Six Years for Option 2
For Option 2:
- Loan Amount: R251135
- Annual Interest Rate: 10.25%
- Term: 6 years
- Monthly Repayment: R3905.00
- Monthly Administration Fee: R57.00
- Compulsory Once-Off Payment: R1140.00
- Balloon Payment: 30% of Loan Amount
The balloon payment amount:
[tex]\[ \text{30% of R251135} \][/tex]
[tex]\[ = 0.30 251135 \][/tex]
[tex]\[ = R75340.5 \][/tex]
The total amount paid in monthly repayments over 6 years:
[tex]\[ \text{(Monthly Repayment + Administration Fee) Number of Months} \][/tex]
[tex]\[ \text{(R3905 + R57) 12 6} \][/tex]
[tex]\[ \text{(R3962 * 72)} \][/tex]
[tex]\[ = R285264 \][/tex]
Including the balloon payment and the once-off payment:
[tex]\[ R285264 + R75340.5 + R1140 \][/tex]
[tex]\[ = R361744.5 \][/tex]
So the total repayment for Option 2 amounts to R361744.5.
#### 2.2.5 Calculate the Difference Between the Amounts in 2.3 and 2.4
The total repayment for Option 1 is R314124.
The total repayment for Option 2 is R361744.5.
The difference between these amounts:
[tex]\[ R361744.5 - R314124 \][/tex]
[tex]\[ = R47620.5 \][/tex]
So the difference between the total amounts paid is R47620.5.
#### 2.2.6 Explain Why the Monthly Repayment of Option 2 is Lower than Option 1 Where a Deposit Has Been Paid
The monthly repayment for Option 2 is lower than that for Option 1 primarily due to the presence of a balloon payment. A balloon payment is a large, one-time payment made at the end of the loan term.
In Option 2, 30% of the loan amount will be paid as a balloon payment at the end of the term. This reduces the amount that needs to be repaid via the monthly installments over the term of the loan, resulting in lower monthly payments. However, the total cost of the loan can be higher due to the final balloon payment, which needs to be considered when comparing the overall cost of the two loan options.
