Question

Sam learns that the interest rate on his $3000, one year auto loan is 5%. He has calculated his monthly payments using the simple interest formula and is ready to apply for the loan. Which of the following is the best advice you give to your friend.

A: If you can afford the monthly payment you have calculated, go ahead and apply.

B: You need to find out about any fees that are associated with the loan as they will affect your monthly payments. Ask your lender about the APR.

C: You have to multiply the monthly payment you have calculated but 0.05 to calculate the APR.

D: The APR is not the same as interest rate. It will be higher, but there is no way to calculate it and the lender probably won't help you with that. Just make sure you have extra money to pay off your debt.

Answer 1

Your answer should be A , if you can afford monthly ...

Answer 2

B: You need to find out about any fees that are associated with the loan as they will affect your monthly payments. Ask your lender about the APR.

Step-by-step explanation:

Annual Percentage Rate is the annual rate of interest that is charged to borrower and paid to lenders. Sam has calculated simple interest to acquire a loan of $3000 from a bank. He is not aware of the APR rate and has simply decided to apply for a loan on the basis of simple interest calculations. It is better for Sam to ask the lender about any additional covenant or fees that are associated with the loan before applying for the loan.