On January 1 of the current year, Kale Farms purchased a tractor for $20,000. The company signed a 6% installment note to pay off the debt with 48 monthly payments over four years. Each payment is $469.70. How much interest must be paid over the life of the loan?

Question

Quizplus · Accepted Answer

To determine the total amount of interest paid over the life of the loan, we first need to calculate the total amount paid through the installment payments and then subtract the original principal amount of the loan.
The monthly payment is $469.70, and there are 48 monthly payments over four years. So, the total amount paid over the life of the loan is:
Total payments = Monthly payment amount × Number of payments
Total payments = $469.70 × 48
Total payments = $22,545.60
The original loan amount (the principal) was $20,000. To find the total interest paid, we subtract the principal from the total amount paid:
Total interest = Total payments - Principal
Total interest = $22,545.60 - $20,000
Total interest = $2,545.60
Therefore, the total interest paid over the life of the loan is $2,545.60.
The correct answer is b. $2,545.60.

On January 1 of the Current Year, Kale Farms Purchased