Question

You want to buy a used car. The car costs $14,675, including tax and license. You pay $5000 of this at the time of the purchase and you finance the rest over three years. The annual interest on the loan is 9%. What is your monthly payment on this loan?

Answer 1

$341.3125

Explanation:

Let's find the answer.

First, because $5000 were paid at the time of the purchase, the loan is:

L=14675-5000=9675

Now, becuase we are going to finance $9675 over 3 years (36 months), and because the problem is asking for the monthly payment we have:

m=9675/36=268.75 where:

m=payment per month without interests.

For calculating the total interest 'I' we use the following formula:

I=(initial capital)*(annual interest)*(time)

I=9675*0.09*3=2612.25

Dividing the total interest 'I' by the total months (36) we have:

i=2612.25/36=72.5625

Adding payment per month without interests 'm' and monthly interest 'i' we have:

m+i=268.75+72.5625=341.3125

In conclusion the monthly payment is $341.3125.