Question

Mike Morgan has a $83,098.59 loan. He paid $1,000 in fees and $4,900 in total interest the first year. If the APR is the finance charge (interest plus fees) for one year ÷ amount financed, what was the APR for that year?

Answer 1

The answer is 7.1

(1000+4900)/83098.59

Answer 2

APR would be 0.071.

Explanation:

Given formula,

`\text{APR}=\frac{\text{Finance Charge}}{\text{Amount financed}}`

Here,

Paid fees for a year = $ 1,000,

Total interest for the year = $ 4,900,

⇒ Finance charge = $ 1,000 + $ 4,900 = $ 5,900,

Also, the financed amount of the loan = $ 83,098.59,

Hence, the APR charged for the year

`=(5900)/(83098.59)`

`=0.0710000013237`

`\approx 0.071`