Jack borrows $8000 from a bank to buy his first car. His monthly payment is $187.20 for four years.

Question

a) Calculate the total amount that Jack will repay the bank.


b) How much interest will he pay over the life of the loan?

Answer 1

$8000 is what was borrowed, at $187.20 per month

a. There are 12 months in one year. (4 years x 12 months = 48 months).

 
$187.20 (per month) x 48 (total number of months) = $8985.60 (What Jack will ultimately pay back to the bank.)

b. To find the total interest Jack ends up paying, subtract what was borrowed from what Jack paid.
  $8985.60 - $8000.00 = $985.60 (total interest paid)

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Answer 2

4 years x 12 months/year = 48 months

 

(a)  48 months x $187.20 = $8985.60  total amount paid to the bank

 

(b)  $8985.60 - $8000 = $985.60 = amount paid in interest (above the $8000 borrowed). This is 12.32% interest