Question

You are considering buying a car with an amortized loan. The car loan will be $40,000 and have an annual interest rate of 2.8%, compounded monthly. You have two options for financing the car, the first is a fully amortized loan for 72 months while the second is a partially amortized loan for 36 months with a balloon payment of $18,000 (i.e. you will still owe $18,000 on the loan at month 36). What are the payments for each option?

Answer 1

DATE! Solution = Taking Amortized car loan The car loan = $ 40,000 Annual interest Rate = 2.8%. - compounding - Monthly . We have two options following us the calculation of payment to be made in each option . option li- - fully Amortised loan for 72 months - Amount Principal ( 1+ Rate in year u Rato Period X2 10 $40,000 ( 1 + 2:3) 1007 $ 47 308.20 ... Total Amount to be payable in option 1 = $ 47, 308.20 option 2 Partially Amortised loan for 36 months $18000 should be a balloon payment. - Putting value in above amount formula → Guoco -$18.00 ) => $22000 → $22.000 1 + 27 2.8 3x12 OD ~ $23,925.49 Add:- ballon pay, $ 18000 $44.925.49 " Total payment to be made in option 2 = $ 41925:49.