To buy a car, you borrow $25,000 with a term of five years at an APR of 4%.

Question

What is your monthly payment? (Round your answer to the nearest cent.) How much total interest is paid? (Round your answer to the nearest cent.) 

Answer 1

P = monthly payment

r = rate per period (here monthly)

n = number of period

 

P = (r * L) ÷ (1 - ( 1 + r )^-n )

 

The rate is 0.04 per year, so the rate per month is 0.0033.

The number of periods is 60.

 

P = ( 0.0033 * 25000 ) ÷ ( 1 - ( 1.0033 )^-60 )

P = 82.5 ÷ ( 1 - 0.82 )

P = 82.5 ÷ 0.18

P = 459.96

 

$27,597.60 is paid for the $25,000 car. Interest is the difference, $2,597.60.