Question

You have decided to buy a car and intend to finance $12,000 of the cost. As with many auto loans, you will be making equal monthly payments for 5 years (which is, incidentally, too long and will result in a lot of interest paid out). The APR is 17%, compounded monthly. What is the size of your monthly car payment

Answer 1

$298.23

Step-by-step explanation:

To calculate this, the formula for calculating loan amortization is used as follows:

P = {A × [r(1 + r)^n]} ÷ {[(1 + r)^n] - 1} .................................... (1)

Where,

P = Monthly required payment = ?

A = Cost of the car = $12,000

r = monthly interest rate = 0.17/12 = 0.014167

n = number of payment period = 5 years = (5 × 12) months = 60 months

Substituting the values into equation (1), we have:

P = {12,000 × [0.014167(1 + 0.014167)^60]} ÷ {[(1 + 0.014167)^60] - 1} = $298.23