Question

Your friend Susie goes into the same car dealership and tells them she has a budget of $300/month. She is interested in the same Chevy Cruze that is on sale for $16,000. She has a poor credit score and only qualifies for a 72-month 10% APR loan with No Down Payment. What is her monthly payment? Did she stay within budget?

How much would the car cost Susie after the loan has been paid in full?​

Answer 1

Susie's monthly payment can be calculated using the loan amount formula:

Loan Amount = Monthly Payment x [(1 - (1 + Monthly Interest Rate)^-Number of Months) / Monthly Interest Rate]

where Monthly Interest Rate = (10%/12) = 0.0083 (since APR is annual percentage rate, we divide it by 12 to get monthly rate), Number of Months = 72, and Loan Amount = $16,000 (since she is not making any down payment).

Substituting the values:

$16,000 = Monthly Payment x [(1 - (1 + 0.0083)^-72) / 0.0083]

Solving for Monthly Payment:

Monthly Payment = $276.76 (rounded to the nearest cent)

Susie's monthly payment is within her budget of $300/month.

The total amount Susie will pay over the life of the loan is:

Total Amount Paid = Monthly Payment x Number of Months = $276.76 x 72 = $19,903.52

Therefore, the car will cost Susie a total of $19,903.52 after the loan has been paid in full.