detail explanation

Question

Find the monthly payment of a $4,000 loan for 48 months at an add-on 9%annual interest. Also, find the final balance if this loan is to be paid off atthe 30th payment (assuming that 29 payments have been made).

Answer 1

interest=principal*rate*time

i=prt

i=$4000*9%*4(48 months is 4 years)

i=$4000*.09*4

i=$360*4

i=$1440

add $4000 and $1440

$4000+$1440=$5440

you have to pay back $5440 in 48 equal payments

$5440/48=$113.33 per month

29*$113.33=$3286.57

$5440-$3286.57=$2153.43 is the payoff amount

notice that if you paid the loan off over 48 months that 48*$113.33=$5439.84-you still owe $0.16

47*$113.33=$5326.51

$5440-$5326.51=$113.49 (your last payment), $0.16 more !

 

Answer 2

Add-on interest is where simple (not compounded) interest is computed at the start and added to the loan amount. The payment amount then is determined by adding the loan plus the add-on interest and then dividing by the number of payments.

 

48 months = 4 years

4*9% = 36%

$4000*36%=$1440

$4000+$1440=$5440

 

monthly payment = $5440/48 =$113.33

 

29*$113.33 = $3286.57

 

Payoff amount = $5440-3286.57 = $2153.43