Question

Jose borrowed $800 from his local credit union for 8 months at 6% simple interest. He agreed to pay the loan by making 8 equal monthly payments/

a. how much is the finance charge
b. what is the total amount to be repaid
c. how much is the monthly payment

Answer 1

Simple interest means an portion of the principal is added to the principal. In this case the 6% simple interest is will be only from the principal amount which is $800.

A. The finance charge or the interest is $48 ( 6% of $800).
B. The total amount to be repaid is $800 (principal amount) + $48 (6% interest) = $848.
C. To equally pay off the total amount every month, we simply divide $848 by 8 months. $848 / 8 months = $106. The monthly payment would be $106.