Question

Dave borrowed $1,280 on January 1, 2022. The bank charged him a $6.50 service charge, and interest was $44.70. If Dave paid the $1,280 in 12 equal monthly payments, what is the APR?

Answer 1

The APR for Dave's loan is 3.49%.

Step-by-step explanation:

To calculate the APR (Annual Percentage Rate), we need to find the total amount that Dave paid over the 12-month period. The amount borrowed was $1,280 and there was a service charge of $6.50, so the total amount Dave paid was $1,280 + $6.50 = $1,286.50. The interest charged was $44.70, so the total amount Dave paid over the 12 months was $1,286.50 + $44.70 = $1,331.20.

The APR can be found using the formula:

APR = (Total Interest / Total Amount Borrowed) * (12 / Number of Months)

Plugging in the values, we get:

APR = ($44.70 / $1,280) * (12 / 12) = 0.0349 * 1 = 0.0349

Converting to a percentage, the APR is 0.0349 * 100 = 3.49%.