Question

After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $11,500 price, but financing through the dealer is no bargain. He has $1,500 cash for a down payment, so he needs an $10,000 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $10,000 for a period of four years at an add-on interest rate of 11 percent.
What is the total intetrest on Richard's loan?
What is the total cost of the car?
What is the monthly payment ?
What is the annual percentage rate?

Answer 1

Explanation:

I = Prt

I = (10000)(.11)(4) = $4400

Total Cost = Down Payment + Principal Borrowed + Interest

Total Cost = 2000 + 8000 + 4400

= $14,400

Monthly Payment = (Principal Borrowed + Total interest) / Total number of payments

Monthly Payment = (10,000 + 4400) / 48

= $300

APR= (2 × n × I) / [P × (N + 1)]

APR = (2 × 12 × 4400) / [10,000 × (48+1)]

= 21.55%