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Mr. Rahm purchases a new car for $24,000 and finances it with a 5-year simple interest loan at an annual rate of 3. 75%. What are Mr. Rahim's monthly car payments?

1 Answer

7 votes

Answer:

$475

Explanation:

The total amount Rahim will be paying is found from the simple interest formula ...

A = P(1 +rt) . . . . . P is the loan amount, r is the annual rate, t is the number of years.

A = $24,000(1 +0.0375×5) = $28,500

Spread over 60 monthly payments, that amounts to ...

$28,500/60 = $475 . . . per month

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Additional comment

Mr. Rahim's loan has an APR of 6.98%. This sort of loan costs more than the interest rate might suggest, because interest is still being paid on principal that has already been repaid.

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