Question

In January 2015, the interest rate on 36 month car loan was 7.4%. Suppose you have a contract to buy a car for $8000.a) If a bank will lend you $8000 amortized at 7.4% for 36 months, what is your monthly payment? b) What is the total amount you pay? c) What is the interest you pay?

Answer 1

a]

Monthly loan payment is calculated using PMT function in Excel :

rate = 7.4% / 12   (converting annual rate into monthly rate)

nper = 36 (36 monthly payments)

pv = 8000 (loan amount)

PMT is calculated to be $248.48

A1 fax =PMT(7.4%/12,36,8000) D E F B C i $248.48)!

b]

Total amount paid = monthly payment * total number of monthly payments

Total amount paid = $248.48 * 36

Total amount paid = $8,945.37

c]

Interest paid = total amount paid - loan amount

Interest paid = $8,945.37 - $8,000

Interest paid = $945.37