Question

You are considering purchasing a car with a sticker price of $27,000 (nonnegotiable with no down payment required). You wish to make monthly payments for five years and the most you can afford to pay is $500 a month. The credit union has agreed to loan you the money at a 2.49% annual interest rate.

a) What is your monthly payment and can you afford to purchase the car?

Answer 1

To calculate the monthly payment for a car loan, you can use a formula. The monthly payment for this specific car loan is $484.98, which is less than the maximum amount you can afford to pay.

Step-by-step explanation:

To calculate the monthly payment for a car loan, we can use the formula:

C = P imes r(1 + r)^n / ((1 + r)^n-1)

Where:

• C is the monthly payment
• P is the loan amount
• r is the monthly interest rate (2.49% annual interest rate divided by 12)
• n is the total number of payments (5 years multiplied by 12)

Using this formula, the monthly payment comes out to be $484.98. Since this is less than the maximum amount you can afford to pay ($500), you can afford to purchase the car.