Question

You can afford a $200 per month car payment. You've found a 3 year loan at 4% interest. How big of a loan can you afford

Answer 1

Based on the payment you can afford, the interest rate, and the number of years, the loan you can afford is $6,774.15

What size of a loan can you afford?

First find the monthly interest rate:

= 4% /12

= 1/3%

Number of periods:

= 3 x 12

= 36 months

The loan you can afford can be found as:

= Payment x ( 1 - (1 + rate) ^ -number of periods) / rate

= 200 x (1 - (1 + 1/3%)⁻³⁶) / 1/3%
= $6,774.15

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