Mr & Mrs Kelso are seeking a loan to buy a caravan to use to travel around Australia. The on-road cost of the caravan is $35,000. The loan details they have been provided from Ezy Credit are that the interest rate charged will be 9% p.a. and require end-of-month repayments over a 4-year term. The initial fees that form part of the loan arrangement are an establishment fee of $750 as well as a brokerage fee to Ezy Credit calculated as 2% of the loan value. Given that Mr & Mrs Kelso wish to borrow all the funds required to obtain the caravan what will be the approximate end-of-month loan repayment?

Question

Quizplus · Accepted Answer

The total amount of the loan will be: $35,000 + $750 + (2% x $35,000) = $36,700
The monthly interest rate is 9% / 12 = 0.75%

Using the loan repayment formula:
Loan Repayment = P × (r(1 + r)^n) / ((1 + r)^n - 1)
where,
P = loan amount = $36,700
r = monthly interest rate = 0.75%
n = total number of payments = 4 years x 12 months/year = 48

Repayment = $907.80 (rounded to the nearest cent)

Mr & Mrs Kelso Are Seeking a Loan to Buy