Question

James borrows $4,200 to pay his college tuition. He signs a 5-year simple interest loan. If the monthly payments are $78.40, what is the interest rate on the loan?

Answer 1

2.4%

Explanation:

Total amount of payments:

5 years * 12 months/year * $78.40/month =

= $4704.00

Amount of interest paid in 5 years:

$4704 - $4200 = $504

Amount of interest paid in 1 year:

$504/5 = $100.80

Annual percent rate of interest:

$100.80/$4200 * 100% = 2.4%

Answer: 2.4%