Lesson 5 of 25 · 6 min
Why a fixed installment loan does not move with that same policy change
A fixed installment does not reprice when the same policy rate moves the card.
The same +0.75 point policy move that added $5.40 a month to the card leaves a fixed installment untouched. Track 12 lesson 7 is reset cadence: you are charged at the rate your agreement last looked up. On a fixed installment the look-up already happened, once, when the contract was written. The cadence is never, until a new contract is written.
Tallow Yard Autos, from Track 22, finances $26,840 at 7.65 percent for 72 months. The installment is $466.02. After the +0.75 point policy move the installment is still $466.02. The card on $8,640 moved $5.40 a month. Two clocks, one policy decision. The car's rate is not waiting for a reset date. It is not looking up at all.
Track 23 lesson 8 is the housing version of the same split: a home equity line takes a policy move on the next cycle; an adjustable-rate mortgage waits for the date it already wrote. A card is the line's clock. A car installment is further from the policy rate than the ARM: the ARM will look up eventually; the fixed installment will not, unless the contract itself is replaced. Cadence is the whole difference.
The policy move is one number. The card's next cycle can take it. The fixed installment's month cannot, because its rate is not a look-up.
Key terms
- Fixed installment
- A payment computed once, at a rate that does not reprice for the term. Cadence: never, until a new contract.
- Reset cadence
- How often the agreement looks up the rate. Track 12 lesson 7's question. On a fixed loan the answer is never.
- Two clocks
- The card's next-cycle look-up and the installment's frozen rate, sitting under one policy decision.
Worked example
One policy move, two arrivals
The +0.75 point policy move from lesson 4. Wick & Pell card on $8,640. Tallow Yard Autos $26,840 at 7.65 percent for 72 months, installment $466.02.
- Card extra monthly interest
- $5.40
- Car installment before the move
- $466.02
- Car installment after the move
- $466.02
- Card cadence
- Next cycle
- Car cadence
- Never
$8,640 × 0.0075 ÷ 12.
The rate is not a look-up.
Demand-facility clock.
Until a new contract is written.
The policy move added $5.40 to the card and $0.00 to the $466.02. Cadence, not the size of the principal, decided which cash moved.
Check yourself
A card on $6,000 takes a +0.75 point pass-through. A fixed car installment is $466.02 on $26,840 at 7.65 percent. What is the extra monthly interest on the card, and what happens to the $466.02?
A fixed installment is a rate that does not reprice, the everyday version of the lag Track 12 lesson 7 calls reset cadence — here the cadence is "never", until a new contract is written. Open Reset cadence: the question that decides a rising month →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.