Question

Seth financed the purchase of a used car for $6,750. He has a loan at a 7.125% annual interest rate with monthly payments of $162.03. For his first monthly payment, calculate the amount that went towards interest and the amount that was applied to the principal.

Answer 1

Approximately $40.04 went towards interest and approximately $121.99 was applied to the principal for the first monthly payment.

Step-by-step explanation:

For the first monthly payment, let's calculate the interest and principal payments.

The monthly payment is $162.03, which is fixed throughout the loan term. To determine the interest paid, we need to calculate the interest rate for the first month. The annual interest rate is 7.125%, so the monthly interest rate is 7.125% divided by 12, which is approximately 0.59375%. The interest paid for the first month is the loan amount ($6,750) multiplied by the monthly interest rate.

The principal payment for the first month is the monthly payment ($162.03) minus the interest paid. To calculate the principal payment, we subtract the interest paid from the monthly payment.

In summary, for the first monthly payment, approximately $40.04 went towards interest and approximately $121.99 was applied to the principal.