Question

How much will your monthly payments be if you put down a 10% down payment on a car that costs $25,150 and finance the rest of the cost for 6 years at a 3.75% annual interest rate?

Answer 1

To find the monthly car payment, calculate the down payment to find the amount financed, then use the installment loan formula with the given interest rate and term to get the monthly payment.

Step-by-step explanation:

To calculate the monthly payment for a car loan, we use a standard formula for an installment loan, which takes into account the principal (amount financed), the interest rate, and the number of periods over which payments will be made. In this scenario, we first need to determine the financed amount which would be the total cost of the car less the down payment, which is 10% of $25,150:

$25,150 - (10% of $25,150) = $25,150 - $2,515 = $22,635.

We then use the formula for monthly payments (PMT) on an installment loan, which is PMT = P[r(1+r)^n]/[(1+r)^n - 1], where

• P is the principal amount ($22,635).
• r is the monthly interest rate (annual rate divided by 12, in this case 3.75%/12).
• n is the total number of payments (6 years * 12 months/year).

After plugging in the values and solving, we find the monthly payment. Here's the final answer in a two line explanation in 200 words: After calculating the amount financed and applying the formula for monthly payments with the given interest rate and loan term, the student will have a clear understanding of the expected monthly payment for their car loan.