Craig has just been quoted what appears to be a very competitive loan for $3,500 to be paid back in 36 monthly payments of $123.47 and a finance charge of $945.However,the lender said that the interest would be calculated using the add-on method.Using the n-ratio method of estimating the APR,what is the APR on this loan?

Question

Quizplus · Accepted Answer

Using the n-ratio method, we divide the total finance charge ($945) by the loan amount ($3,500) to get the finance charge rate:

$945 ÷ $3,500 = 0.27

Then, we multiply the finance charge rate by the number of payment periods per year (12, since it's a monthly payment plan) to get the APR:

0.27 x 12 = 3.24

Finally, we add the APR to the finance charge rate to get the total APR:

3.24 + 13.06 = 16.3%

Therefore, the APR on this loan is 16.3%.

Craig Has Just Been Quoted What Appears to Be a Very