Final Answer:
The finance charge for Solomon's 2-year, $15,320 loan at an APR of 3.29% will be approximately $1,008.
Step-by-step explanation:
To calculate the finance charge for a loan, you can use the formula: Finance Charge = Principal Amount × Interest Rate × Time. In this case, the principal amount is $15,320, the interest rate is 3.29% (or 0.0329 in decimal form), and the time is 2 years. Plugging these values into the formula: Finance Charge = $15,320 × 0.0329 × 2 = approximately $1,008. This finance charge represents the total cost of borrowing the principal amount over the specified time at the given interest rate.
The Annual Percentage Rate (APR) accounts for the yearly interest plus any additional fees or costs associated with the loan. It's important to note that the APR is an annualized rate, so for a 2-year loan, the finance charge represents the cumulative interest paid over the two years. The finance charge is essentially the extra amount Solomon will pay on top of the initial loan amount ($15,320) to cover the cost of borrowing the money.
Understanding the finance charge helps borrowers comprehend the total expense of taking out a loan. In Solomon's case, the $1,008 finance charge is an additional cost on top of repaying the principal amount. It's crucial for borrowers to factor in the finance charge when planning their repayment strategy and assessing the overall affordability of the loan.