Question

Joseph buys a Hummer for $59,000, financing it with a five-year 7.60% APR loan paid monthly. He decides to pay an extra $50 per month in addition to his monthly payments. Approximately how long will he take to pay off the loan under these conditions?

Answer 1

Answer:

57.07 months.

Joseph must decide whether the 57th payment was $1,327, or he can pay a 58th payment of just $92.

Explanation:

The easiest way to calculate a monthly payment is using a payment calculator:

• principal = 59,000
• n = 60
• APR = 7.6%

Monthly payments = $1,185.04

Since Joseph will pay an extra $50 each month, his payment = $1,235.04

By paying that extra amount Joseph will reduce his payments by almost 3 months to 57.07 months

After the 57th payment, Joseph' balance = $91.43, so he can decide to pay a little on the 57th payment or just pay $92 next month.