Question

Zach buys a car for $18,900 with 5% interest over 5 years. What is true about this monthly payment loan?

Answer 1

Answer:

Zach will pay $4,725 in interest on the loan.

Explanation:

In calculating interest the formula that applies is

I= P x R x T

where I = interest

P = principal amount

R = interest rate

T= time

In the case of Zach

I= $18,900 x 5/100 x 5

I = $18,900 x 0.05 x 5

I =$945 x 5

I =$4,725

Interest for the loan is $4,725

Answer 2

Answer: Zach will pay $2,500 in interest on this loan

Explanation: First, we must calculate Zach's monthly payment.

P=18900⋅ (0.05/12)

________________. = 356.67

1- ( 1 + 0.05/12) ^-60

If the monthly payments are $356.67, then the yearly payback is 356.67⋅12=$4280.04.

And, he will pay that each year for 5 years. So, 4280.04⋅5=$21,400.20 is the total payback amount.

Therefore, Zach will pay 21,400.20−18,900=$2500.20 in interest over the life of the loan.