Question

Skylar is applying for a car loan worth $19,975 at and annual interest rate of 6.65% that will be paid monthly over the course of the next 5 years. What is the cost of financing (or the interest cost) of this agreement?

(Hint: How much more would Skylar pay for the car over the course of the loan compared to if they paid for it with cash?)
Note: Please enter your answer without the "$" symbol.

Answer 1

The cost of financing (or the interest cost) of Skylar's car loan is approximately $23,241.60

Step-by-step explanation:

To calculate the cost of financing (or the interest cost) of the car loan, we can use the formula for calculating the monthly payment for a loan.

The formula is:

PMT = (P * i) / (1 - (1 + i)^(-n))

Where:

• PMT is the monthly payment
• P is the principal loan amount (or the loan worth)
• i is the monthly interest rate (annual interest rate divided by 12)
• n is the number of monthly payments (number of years multiplied by 12)

Let's calculate the cost of financing for Skylar's car loan:

PMT = ($19,975 * 0.0665/12) / (1 - (1 + 0.0665/12)^(-5*12))

PMT ≈ $387.36

To calculate the total cost of financing, we multiply the monthly payment by the number of monthly payments:

Total Cost of Financing = $387.36 * (5*12)

Total Cost of Financing ≈ $23,241.60

Therefore, the cost of financing (or the interest cost) of Skylar's car loan is approximately $23,241.60.