Question

B. What's the impact on the total interest she'll pay?

Answer 1

Janet's new monthly payment, with a 4-year payoff goal at 24% interest on a $3500 loan, is approximately $160.95. This adjustment increases the total interest paid to about $1565.60.

To calculate Janet's new monthly payment and the impact on total interest:

a. New Monthly Payment:

Using the loan formula:

`\[ M = P * (r * (1 + r)^n)/((1 + r)^n - 1) \]`

where:

`\( P = \$3500 \)` (principal loan amount)

`\( r = (24\%)/(12 * 100) \)` (monthly interest rate)

`\( n = 4 * 12 \)` (number of payments in months)

Calculate M.

`\[ M = \$3500 * (0.02 * (1 + 0.02)^(48))/((1 + 0.02)^(48) - 1) \]\[ M \approx \$160.95 \]`

b. Impact on Total Interest:

Find the total interest paid using the formula:

`\[ \text{Total Interest} = (M * n) - P \]`

`\[ \text{Total Interest} = (\$160.95 * 48) - \$3500 \]\[ \text{Total Interest} \approx \$1565.60 \]`

The impact on the total interest Janet will pay with the adjusted payoff goal of 4 years is approximately $1565.60.

The complete question is:
Reset Janet's loan back to $3500, 24% interest, but pretend she decided from the start that her pay-off goal was 4 years instead of 2.

a. What is Janet's new monthly payment?

b. What's the impact on the total interest she'll pay?