Question

You can afford a $350 per month car payment. You've found a 5 year loan at 5% interest. How big of a loan can you afford?

Answer 1

So, you're ready to drop $350 each month for a car loan, right? You've got your eyes on a 5-year term with a 5% interest rate. Nice.

To find out how much of a loan you can afford, we're gonna use a little math magic. The formula we use is:

Loan Amount = Monthly Payment * ((1 - (1 + Monthly Interest Rate) ^ -Number of Payments) / Monthly Interest Rate)

Now, we gotta turn that yearly interest rate (5%) into a monthly interest rate. We do this by dividing it by 12, which makes it around 0.004167 each month.

Plug all this info into our formula, and we get:

Loan Amount = 350 * ((1 - (1 + 0.004167) ^ -60) / 0.004167)

Run the numbers, and boom! You're looking at a loan amount close to $19,690.

Just a heads up, this doesn't include any down payment, taxes, or fees you might need to cough up. So, be smart and consider the whole picture before you make your move. Good luck, and happy car hunting!

Answer 2

Answer: To determine how big of a loan you can afford, we need to calculate the maximum loan amount based on your monthly car payment and the interest rate.

Step 1: Convert the annual interest rate to a monthly interest rate.

The annual interest rate is 5%. To calculate the monthly interest rate, divide the annual rate by 12 (number of months in a year).

Monthly interest rate = 5% / 12 = 0.4167%

Step 2: Calculate the loan amount.

To determine the loan amount, we can use the loan affordability formula:

Loan Amount = Monthly Payment / (Monthly Interest Rate * (1 + Monthly Interest Rate)^(Loan Term * 12) - 1)

Using the given information:

Monthly Payment = $350

Loan Term = 5 years

Loan Amount = $350 / (0.4167% * (1 + 0.4167%)^(5 * 12) - 1)

Calculating this equation gives us:

Loan Amount ≈ $18,503.51

Therefore, with a monthly car payment of $350 and a 5-year loan term at a 5% interest rate, you can afford a loan amount of approximately $18,503.51. This means that you can borrow up to this amount to finance your car purchase while keeping your monthly payments within your budget.

Explanation: