Answer:
The amount that your loan balance will be when you pay off the car is $20,566.18.
Step-by-step explanation:
Step 1. Calculation of monthly payment
This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)
Where;
PV = Present value or the cost of the new car = $55,000
P = Monthly payment = ?
r = Monthly nominal rate = Nominal rate / 12 = 6% / 12 = 0.06 / 12 = 0.005
n = number of months = 72
Substitute the values into equation (1) and solve for P, we have:
$55,000 = P * ((1 - (1 / (1 + 0.005))^72) / 0.005)
$55,000 = P * 60.3395139355201
P = $55,000 / 60.3395139355201 = $911.51
Step 2. Calculation of the loan amount balance when you pay off the car
This can be calculated using the ballon payment formula as follows:
P = (PV - (Ballon / (1 + r)^n)) * (r / (1 – (1 + r)^-n)) ...................... (1)
Where:
P = Monthly payment = $911.51
PV = Present value or the cost of the new car = $55,000
Ballon = Ballon payment or the loan amount balance when you pay off the car = ?
r = Monthly nominal rate = Nominal rate / 12 = 6% / 12 = 0.06 / 12 = 0.005
n = number months to pay off the loan amount balance = 48
Substituting the values into equation (1) and solve for Ballon, we have:
911.51 = (55,000 - (Ballon / (1 + 0.005)^48)) * (0.005 / (1 - (1 + 0.005)^-48))
911.51 = (55,000 - (Ballon / 1.27048916109538)) * 0.0234850290479363
911.51 / 0.0234850290479363 = 55,000 - (Ballon / 1.27048916109538)
38,812.39 = 55,000 - (Ballon / 1.27048916109538)
Ballon / 1.27048916109538 = 55,000 - 38,812.39
Ballon / 1.27048916109538 = 16,187.61
Ballon = 16,187.61 * 1.27048916109538
Ballon = $20,566.18
Therefore, the amount that your loan balance will be when you pay off the car is $20,566.18.
