Single Payment Loans

​A single-payment loan is a loan that you repay with one payment after a specified period of time. A business may be short of funds and need to borrow money to meet its payroll or pay for inventory and supplies. The business owner could sign a promissory note with its financial institution. A promissory note is a written promise to pay a certain sum of money on a specific date in the future. The maturity value of the loan is the total amount you must repay. It includes both the principal and the interest owed. Principal is the amount borrowed.

​A loan's term is the amount of time for which the loan is granted. For example, a single-payment loan may be granted for a number of years, months, or days. When the term is a specific number of days, the lending agency may calculate interest in one of two ways:

​1. Ordinary interest is based on a 360-day year.

​2. Exact interest is based on a 365-day year.

​The following formulas are used:

​Principal x Rate x Time = Interest

​Principal x Rate x Time/360 = Ordinary Interest

​Principal x Rate x Time/365 = Exact Interest

​Principal + Interest = Maturity Value

​Anita's bank granted her a single-payment loan of $7,200 for 91 days to pay for new merchandise for her candle shop. Determine the maturity value of the loan if the rate is (a) 6% ordinary interest or (b) 6% exact interest.

​Step 1: Find the ordinary interest owed.

​Principal x Rate x Time/360 = Ordinary Interest

​$7,200 x 6% x 91/360 = Ordinary Interest

​$7,200 x .06 x .25 = $108