Question

John bought a used truck for $4,500. He made an agreement with the dealer to put $1,500 down and make payment of $350 for the next 10 months. The extra cost paid by takng this deal is equivalent to what actual yearly rate of interest

Answer 1

Given:
Total Cost: 4,500
Down Payment: 1,500
Monthly payments: 350 for 10 months

350 x 10 = 3,500 total monthly payment
3,500 + 1,500 = 5,000 total amount paid for the truck

4,500 - 1,500 = 3,000
3,000 ÷ 10 months = 300 monthly payment

350 - 300 = 50 extra cost of paying by taking the deal.
(3,500 - 3,000)÷3,000 = 0.166
0.166 x 100% = 16.6%

16.6% is only the interest for 10 months.
16.6% ÷ 10 mos = 1.66% monthly rate for
1.66% x 12 mos = 19.92% yearly rate