Question

You have just taken out a $22000 car loan with a 7% APR, compounded monthly. The loan is for 5 years.When you first make your payment in one month, how much of the payment will go toward the principal of the loan and how much will go towards the interest.

Answer 1

To calculate the principal and interest payments of a car loan, you can use the formula Principal Payment = Monthly Payment - Interest Payment. In this case, with a $22,000 loan at 7% APR compounded monthly for 5 years, the principal payment for the first monthly payment of $450 would be $321.67.

Step-by-step explanation:

To calculate how much of your monthly payment goes towards the principal of the loan and how much goes towards the interest, we need to use the formula for loan amortization. The formula is:

Principal Payment = Monthly Payment - Interest Payment

In this case, the principal of the loan is $22,000 and the annual interest rate is 7% compounded monthly. Therefore, the monthly interest rate is 7% / 12 = 0.58333%. The loan term is 5 years, which is 5 * 12 = 60 months. And finally, the monthly payment can be calculated using an online loan calculator or financial software.

Let's assume the monthly payment is $450. To calculate the interest payment for the first month, we multiply the monthly interest rate by the remaining principal: $22,000 * 0.58333% = $128.33. Therefore, the principal payment for the first month is $450 - $128.33 = $321.67.