Question

Lucy Smola borrowed $2,500 at 18% for 12 months. Her monthly payment is $229.20.

Q1 If Lucy makes the monthly payment for 12 months, how much will she pay back to the lender?

Q2 Lucy has the opportunity to pay off the loan with her fourth payment. Her current balance is $1,916.23. How much will she have to pay to pay off her loan? *

Q3 How much did Lucy pay in total for the loan if she pays off the loan with her fourth payment? *

Q4 How much will Lucy save if she pays off the loan early?

Answer 1

Lucy will pay back a total of $2,750.40 over 12 months. If she pays off the loan with her fourth payment, she will have paid a total of $2,603.83, saving $146.57 by paying off the loan early.

Step-by-step explanation:

If Lucy makes the monthly payment of $229.20 for 12 months, she will pay back a total of $2,750.40.

To pay off the loan with her fourth payment, Lucy will need to pay her current balance, which is $1,916.23.

If Lucy pays off the loan with her fourth payment, she would have paid a total of

(3 payments of $229.20) + $1,916.23 = $2,603.83.

By paying off the loan early, Lucy will save $146.57, since she avoids paying the remaining 8 payments of $229.20 each.