Question

Your friend just got a five-year car loan for $40,000 with 6% interest rate (APR) and monthly
payments. You explained to her that 6% is too high, and she could have saved a lot of money if she
negotiated with the bank and got 3% instead. How much money would your friend have saved every
month if the rate was 3% instead of 6%?

Answer 1

EMI is computed as,

Where, P = Principal

i = interest rate per period

n = Number of compunding periods

Case 1 - 6% Interest

APR = 6%

So, monthly interest 0.06/12 = 0.005 or 0.5%

So, total Payment = 773.31 * 60 Payment = $46,398.72

Case 1 - 6% Interest

APR = 3%

So, monthly interest 0.03/12 = 0.0025 or 0.25%

So, total Payment = 718.75 * 60 Payment = $43,124.86

Savings made = 46,398.72 - 43,124.86 = $3,273.86