Question

An Auntie Anne's franchise financed a $68,000 pretzel oven with a 61% add-on interest 2 installment loan for 48 months. The loan required a 20% down payment

Answer 1

Here is the full and correct question.

An Auntie Anne's franchise financed a $68,000 pretzel oven with a
`6(1)/(2)` % add-on interest installment loan for 48 months. The loan required a 20% down payment

a. What is the finance charge on the loan?

b. What are the monthly payments?

c. What annual percentage rate is being charged on the loan?

d. If the company decided to pay after 22 months, what is the loan payoff

Answer:

a) $14,144

b) $1428

c) 6.5 %

d) $ 29467

Explanation:

The finance charge on the loan can be calculated as follows;

Let's first determine the loan amount = $68000 - 20% of 68000

=
`68000- (20)/(100)*68000`

= $54,400

The finance charge on the loan can be now be calculated as :

The add on interest =
`6(1)/(2)` % = 6.5 % per annum

Then interest add- on =
`54,400 * (6.5)/(100)*4`

= $14,144

The monthly payments can be determined by calculating for the Equal installment:

Equal installment = Principal + interest add on/ 48 months

=
`(54400+14144)/(48)`

=
`(68544)/(48)`

The monthly payments = $1428

c) The annual % rate is given from the question = 6.5 %

d) If the company decides to pay after 22 month ; we have

Amount to be paid after 48 months = 68544

Lesser interest that is not due for the rest of 26 months out of the 48 months =
`((14144)/(48))*26`

= $ 7661

Less already paid off for the 22 months = 1428 × 22

= $ 31416

∴ If the company decides to pay off after 22 months ; we have:

= $ 68544 + (- $7661 - $31416)

= $ 68544 - $ 39077

= $ 29467