Question

A borrower purchased a car for $23,725 and made a down payment of $2,225. The borrower was approved for a five-year installment loan with an interest rate of 9.75% and monthly payments of $454.17. What is the total cost of the car after five years?

$27,250.20
$29,475.20
$31,981.25
$34,206.25

Answer 1

The total cost of the car after five years is $27,250.20.

Explanation:

To calculate the total cost of the car after five years, we need to consider the down payment, the loan amount, and the interest paid over the loan term.

Loan amount: The loan amount is the purchase price minus the down payment. Loan amount = Purchase price - Down payment Loan amount = $23,725 - $2,225 Loan amount = $21,500

Monthly interest rate: Convert the annual interest rate to a monthly rate. Monthly interest rate = Annual interest rate / 12 Monthly interest rate = 9.75% / 12 Monthly interest rate = 0.8125%

Total interest paid: Multiply the monthly payment by the number of months and subtract the loan amount. Total interest paid = (Monthly payment * Number of months) - Loan amount Total interest paid = ($454.17 * 60) - $21,500 Total interest paid = $27,250.20 - $21,500 Total interest paid = $5,750.20

Total cost of the car: Add the loan amount and the total interest paid. Total cost of the car = Loan amount + Total interest paid Total cost of the car = $21,500 + $5,750.20 Total cost of the car = $27,250.20

Therefore, the total cost of the car after five years is $27,250.20.