Mantago wants to borrow $10,000 to buy a used car.He examined his budget and decided that he can afford a payment of $200 a month.If his bank offers him an APR of 7.5%,how long should he borrow the money so he can afford his monthly payment?

Question

Quizplus · Accepted Answer

To determine the loan term that allows for a $200 monthly payment at an APR of 7.5%, we can use the loan amortization formula or a loan calculator. Given the principal amount ($10,000), the monthly interest rate (7.5% annual rate divided by 12 months = 0.625% per month), and the monthly payment amount ($200), the calculation will show that a term of approximately 5 years is required to ensure the monthly payments do not exceed $200. This is because the total interest paid over the term of the loan, combined with the principal amount, divided by the number of months in the term, must equal the monthly payment amount. A shorter term would result in higher monthly payments, while a longer term would reduce the monthly payment amount but increase the total interest paid over the life of the loan.

Mantago Wants to Borrow $10,000 to Buy a Used Car