Furniture offered on credit for four years,

Question

I want to buy furniture offered to me on credit at an APR of 16%, with a maximum term of 4 years. The furniture cost $2,800, with no downpayment. What will I pay monthly if I borrowed for four years?

Answer 1

We first need to find the total amount that will be paid over the 4 year period then divide that by the

total number of payments which will be 48 since there are 48 months in a 4 year period

 

Using the compound interest formula A = P(1 + r/n)^nt

where A is the final amount paid, P is the principal amount, r is interest rate as a decimal,

n is number of times compounded annually, and t is the time in years we have

 

A = 2800(1 + .16/1)¹⁽⁴⁾

A = 2800(1.16)⁴

A = 5069.79

 

Take this total to be paid and divide it by the number of payments

 

Payment = 5069.79/48 = $105.62 per month