Question

You'd like to purchase a new car when you graduate and start working. The car that you would really like costs $38,000. You've
checked with the bank and based on your income, you would qualify for a car loan with an annual interest rate of 4.32% with a 5-
year repayment period. You now realize that you're not able to afford this car payment each month and still pay your other monthly
expenses. The bank offers a 7-year car loan with the same interest rate. If you were to choose the 7-year car loan instead of the 5-
year car loan, how much lower would your monthly payment be? (Round answer to nearest whole number)

Answer 1

Answer:

174.23 lower p/month

Step-by-step explanation:

7 yr car loan = 38000 x 1.0432^7 =51092.4402043 =$51092.44 total pay back

51092.4402043/84=608.243335765 =$608.24

5 yr car loan = 38000 x 1.0432^5=46948.4748551 =$46948.48 total pay back

46948.4748551/60 =782.474580918 = 782.48 p/month

Amount difference

782.474580918-608.243335765 =174.231245153 =$174.23

Answer 2

For 7 year car loan, the monthly payment will be $180.96 lower as compare to 5 year car loan.

Simple Interest :

The simple interest is computed as,

                   $A=\frac{P*R*T}{100}$

Where P is principle, R is rate and T is time.

Given that, cost of car $P=38000,R=4.32,T=5years$

Substitute values in above equation.

           $A=\frac{38000*4.32*5}{100} =8208$

The amount paid in 5 years$=38000+8208=46208$

Amount paid per month is, $=\frac{46208}{60}=770.14$

For 7 years,

           $A=\frac{38000*4.32*7}{100}=11491.2$

Amount paid per month is,$=\frac{49491.2}{84}=589.18$

The Amount difference is, $=770.14-589.18=180.96$

For 7 year car loan, the monthly payment will be $180.96 lower as compare to 5 year car loan.

Learn more about the Simple interest here:

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