Question

Rylee took out a loan for $3600 at 13% interest, compounded annually. If she makes yearly payments of $460, will she ever pay off the loan? 

Answer 1

No interest is 468 per year

Answer 2

Given that Rylee took out a loan for $3600 at 13% interest.

Where interest is compounded annually.

Interest for 1 year = 13% of 3600 = 0.13*3600 = 468

Amount due after 1 year = Loan + interest = 3600+468 = 4068

Monthly payment = 460

So Amount to be paid after 1 year = 4068-460 = 3608

New due amount $3608 is more than the loan amount $3600

Which means loan will always remain due for his entire life.

Hence Rylee will never be able to pay off the loan.

Interest must be less than the monthly payment in order to pay off the loan.