The Sari-Sari Store Loan
Aling Rosa runs a sari-sari store. A neighbor offers to lend her ₱5,000 to add a freezer for ice candy. The terms: she repays ₱5,750 after 3 months, or she can pay "5-6" style - borrow ₱5,000 and repay ₱6,000 after 2 months. Aling Rosa estimates the freezer will earn her about ₱900 extra profit per month. She currently has ₱1,200 in savings and no other debt. She is comparing the two loan offers and also considering waiting 3 months to save up and buy the freezer with cash.
1. Compute the effective monthly interest rate for each loan offer and recommend which is cheaper, showing your work.
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Offer A: interest = 5,750 − 5,000 = ₱750 over 3 months → ₱250/month → 250 ÷ 5,000 = 5% per month. Offer B: interest = 6,000 − 5,000 = ₱1,000 over 2 months → ₱500/month → 500 ÷ 5,000 = 10% per month. Offer A is cheaper (5% vs 10% per month). To compare fairly, express both as simple monthly rates on the principal: A = 5%/month, B = 10%/month. Even annualized roughly, A is far lower. Recommendation: if she borrows at all, Offer A is the better deal.
2. Using her ₱900/month profit estimate, should Aling Rosa take a loan now or wait and pay cash? Show the numbers and state any assumption.
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Compare net gain. With Offer A: total interest cost = ₱750. Extra profit over 3 months = 3 × ₱900 = ₱2,700. Net gain ≈ 2,700 − 750 = ₱1,950, so borrowing now beats waiting, assuming the ₱900/month estimate is realistic and she can make the repayments. With Offer B: interest = ₱1,000 over 2 months; profit over 2 months = ₱1,800; net ≈ ₱800, still positive but much thinner. If she waits 3 months, she forgoes about ₱2,700 of profit to save interest. Assumption to state: the freezer earns ₱900/month from month one and demand is steady. She should also keep a buffer - using all ₱1,200 savings plus a loan leaves little cushion for a bad month.