Question

Ray Flagg took out a 60-month fixed installment loan of 12,000 to open a new pet store. He paid no money down and began making monthly payments of232. If the business does better than expected and instead of making his 30th payment, Ray wishes to repay his loan in full, determine the APR of the installment loan.

Answer 1

The APR of the installment loan is 16%.

Step-by-step explanation:

The annual percentage rate (APR) of an installment loan is the annualized interest rate that accounts for both the loan principal and any associated fees or finance charges.

To determine the APR of the installment loan taken out by Ray Flagg, we need to calculate the total amount repaid over the 60 months, including the principal amount and interest charges.

The total amount repaid can be calculated by multiplying the monthly payment of $232 by the number of months, which is 60:

Total amount repaid = monthly payment * number of months = $232 * 60 = $13,920.

Next, we need to calculate the interest charges over the 60-month period. The interest charges can be found by subtracting the original loan amount of $12,000 from the total amount repaid, which gives us $1,920.

Finally, we can calculate the APR by dividing the interest charges by the original loan amount and multiplying by 100:

APR = (interest charges / original loan amount) * 100 = ($1,920 / $12,000) * 100 = 16%.