Question

If you buy a Subaru Outback for $28,010.00 at 5% interest on a 10-year loan, your monthly payment will be $297.09. What is the actual cost and interest paid?

Option 1: Actual cost: $28,010.00, Interest paid: $12,851.80
Option 2: Actual cost: $33,148.20, Interest paid: $5,137.80
Option 3: Actual cost: $33,148.20, Interest paid: $28,010.00
Option 4: Actual cost: $28,010.00, Interest paid: $5,137.80

Answer 1

The total actual cost of the Subaru Outback on a 10-year, 5% interest loan with monthly payments of $297.09 is $35,650.80, which includes $7,640.80 in interest. Neither of the provided options correctly matches this calculation.

Step-by-step explanation:

If you buy a Subaru Outback for $28,010.00 at a 5% interest rate on a 10-year loan with monthly payments of $297.09, to calculate the actual cost and interest paid, you'll need to multiply the monthly payment by the number of months in the loan term (10 years = 120 months). Multiply $297.09 (monthly payment) by 120 months to get the total amount paid over the life of the loan, which equals $35,650.80.

The actual cost of the car includes the initial amount borrowed plus the total interest paid. To determine the interest paid, subtract the original loan amount from the total amount paid over the loan's life. Thus, the interest paid would be $35,650.80 (total paid) - $28,010.00 (original loan amount) = $7,640.80.

Therefore, the correct option is Option 2: Actual cost: $35,650.80, Interest paid: $7,640.80. However, it's worth noting that none of the given options match this calculation, which may suggest a typo in the options provided or the need for recalculating with potential additional information like taxes, fees, or down payments.