Question

If Sheila paid $797.50 in interest on a 5 year loan of $5,800 for her first car, what was the interest rate? (Make sure you’ve changed the decimal to a %)

Answer 1

In calculating the interest on a car we have a formula

(interest rate/number of payments) x loan principal = interest.

Since, we have:
Interest rate = ?
number of payments = 60 ( 5 year loan x 12 months)
loan principal = 5800
interest = 797.50

We need to derive a formula to find the IR(interest rate)

(interest rate/60) x 5800 = 797.50
IR (5800) / 60 = 797.50
IR (5800) = 797.50 (60)
IR (5800) = 47850
IR = 47850/5800
IR = 8.25 %