Question

Please help!! Katherine O'Donnell obtained a personal loan of $1,800 at 10% for 12 months. The monthly payment is $165.00.

What is the new principal after the first payment?

Answer 1

$1650

Explanation:

Each payment is applied first to the amount of interest that is due, then to the remaining principal.

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For the first monthly payment, the interest due is ...

I = Prt = $1800(0.10)(1/12) = $15.00

So, the amount of the payment that gets applied to the principal is ...

payment - interest = $165 -15 = $150

The new balance is ...

$1800 -150 = $1650.00 . . . . new principal after the first payment

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The attachment shows the balance after each payment. Each interest amount is rounded to cents. The negative balance after the last payment is the amount of excess that last payment represents.