Question

You want to buy a $33,000 car. The company is offering a 2% interest rate for 60 months (5 years). What will your monthly payments be?

Answer 1

answer: $660 per month (w/ the interest rate)

33000×0.02= 660

Answer 2

You want to buy a $33,000 car. The monthly payments is $ 605

Most car loans use simple interest, a type of interest of which the interest charge is calculated only on the principal

Solution:

Price of the car as mentioned in the question is equal to $33,000

Given rate of simple interest is equal to 2%,

Given time interval is equal to 60 months i.e., 5 Years

Most car loans use simple interest. Hence we can use simple interest formula to calculate the monthly payment

The formula of simple Interest is given as

`S . I=(P * R * T)/(100)`

Where: P = Principal Amount

R = Rate

T = Time Interval

Thus, substituting the values we get

`S . I .=(33000 * 2 * 5)/(100)`

`=(33000)/(10)=3300`

Therefore, total amount = Cost of the car + Interest = 33,000 + 3,300 = 36,300

Number of months for which instalment have to be paid is equal to 60 months i.e., 5 years

Thus, monthly payment to be given as instalment would be equal to

`=\frac{\text {total Amount}}{\text {time Period}}=(36300)/(60)=605`

Thus the monthly payments is $ 605