Question

You have decided to purchase a car that costs $17,500. You will pay $2,000 down and will finance the rest. You plan on making monthly payments of $400 for 60 months. What is the monthly interest? What is the annual interest rate?

Answer 1

ANSWER: (there seems to be a word missing as as it should be monthly interest rate and not monthly interest as monthly interest will vary every month )

Purchase price of car = $17,500

money taken on loan = purchase price of house - downpayment

money taken on loan = $17,500 - 2,000 = $15,500

i = ?

n = 5 year or 60 months

In order to find the monthly payment we will use the following formula.

monthly payment = money taken on loan(a/p,i,n)

400 = 15,500(a/p,i,60)

400 = 15,500(a/p,i,60)

400 / 15500 = (a/p,i,60)

0.025866 = (a/p,i.60)

solving for i via trial and error we get i = 1.563%

so the monthly interest rate is 1.563%

the annual interest rate will be 1.563% * 12 = 18.756%