Question

You are trying to decide between a 48-month loan and a 60-month car loan. If the loan is for $11,000 at 4% APR, how much more per month is the monthly payment of the shorter loan?

Answer 1

Loan Amount = 11000

Monthly Rate = 4/12 %

Number of monthly period = 48

Number of monthly period = 60

Loan Amount = Present value of all the monthly payments discounted at monthly rate

11000 = Monthly Payment * ( (1/1.00333)^1 +(1/1.00333)^2 +(1/1.00333)^3 +(1/1.00333)^4 +...................  (1/1.00333)^48 )

Monthly Payment = 248.37

11000 = Monthly Payment * ( (1/1.00333)^1 +(1/1.00333)^2 +(1/1.00333)^3 +(1/1.00333)^4 +...................  (1/1.00333)^60 )

Monthly Payment = 202.58

Difference = 248.37 - 202.58 = 45.79 Answer

45.79 more per month is the monthly payment of the shorter loan.

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