Question

Jocelyn Denot took out a $4,800 installment loan at 17% for 12 months for remodeling expenses. Her monthly payments were $437.78. After five payments, the balance due was $2,897.95. If Jocelyn pays off the loan with the sixth payment, how much will she save?

Answer 1

The monthly interest for a nominal interest of 17% is 0.17/12.

If she had paid monthly payment for 12 months,
amount paid=12*437.78=$5253.36

If she paid off at the sixth payment,
Amount outstanding
=2897.95*(1+.17/12)
=2939.01
Total amount paid
=2939.01+5*437.78
=5127.91

Amount saved = $5253.36-5127.91=$125.45

Note: these are out-of-pocket amounts. Value of money actually varies with time.