Question

A $4200 loan is to be paid off in 36 monthly payments of $141.17. The borrower decides to pay off the loan after 20 payments have been made. Find the amount of interest saved.

Answer 1

The amount of interest saved by the borrower is $62.61

Step-by-step explanation:

1. To calculate rate of 36 monthly payments,

Principal = $4200

Rate = r%

Time = $\frac{36}{12}$ = 3 years

Interest = $141.17

Formula for calculating interest is,

Interest = $\frac{P*R*T}{100}$

141.17 = $\frac{4200*r*3}{100}$

141.17 x 100 = 12,600 x r

r = $\frac{14117}{12,600}$

r = 1.12%

2. To calculate interest of 20 monthly payments,

Principal = $4200

Rate = 1.12%

Time = $\frac{20}{12}$ = 1.67

Interest = I

Formula of interest --> I = $\frac{P*R*T}{100}$

I = $\frac{4200*1.12*1.67}{100}$

I = $\frac{7855.68}{100}$

I = $78.56

3. Amount of Interest saved = Interest of 36 monthly payments - Interest of 2- monthly payments

Interest saved = 141.17 - 78.56

Interest saved = $ 62.61

Therefore, the amount of interest saved is $62.61

Keywords: Interest rate

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