Question

You purchase a new car for $44,778. You finance the purchase with a 4-year loan which consists of equal monthly payments starting next month. The interest on the loan is 4.83% APR compounded monthly. What are your monthly payments?

Answer 1

The monthly payment is computed as shown below:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 4.83% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.4025% or 0.004025

n is computed as follows:

= 4 year x 12 months (Since the payments are on monthly basis, hence multiplied by 12)

= 48

So, the monthly payments is computed as follows:

$ 44,778 = Monthly payment x [ (1 - 1 / (1 + 0.004025)⁴⁸ ) / 0.004025 ]

$ 44,778 = Monthly payment x 43.5684955

Monthly payment = $ 44,778 / 43.5684955

Monthly payment = $ 1,027.76 Approximately

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