Question

Barry Wood wants to bur a used car that costs $6,000. He has two possible loans in mind. One loan is through the car dealer; it is a three-year add-on interest loan at 5% and requires a down paymenf of $300. The second is through his credit union; it is a three-year simple interest amortized loan at 9.5% and requires a 10% down payment. (Round your answers to the nearest cent.

Find the monthly payment for each loan.
dealer: $____
credit union: $____

Answer 1

Barry Wood will have a monthly payment of $191.67 for the add-on interest loan and $214.17 for the simple interest amortized loan.

Step-by-step explanation:

To find the monthly payment for each loan, we can use the formulas for add-on interest loan and simple interest amortized loan.

Add-on Interest Loan:

The total amount to be paid back for the add-on interest loan is the loan amount plus the interest. The monthly payment can be found by dividing the total amount by the number of months:

Total amount = loan amount + interest = $6000 + ($6000 * 5% * 3) = $6000 + $900 = $6900

Monthly payment = total amount / number of months = $6900 / 36 = $191.67

Simple Interest Amortized Loan:

The total amount to be paid back for the simple interest amortized loan is the loan amount plus the interest. The interest can be calculated using the formula:

Interest = loan amount * interest rate * time = $6000 * 9.5% * 3 = $1710

Total amount = loan amount + interest = $6000 + $1710 = $7710

Monthly payment = total amount / number of months = $7710 / 36 = $214.17