On January 1, Pablo borrows $5,000 with a fixed interest rate on the loan of 10% and a loan term of 2 years. He will be making monthly payments of $230.72. How much of Pablo's first loan payment would be interest charged for January, the first month of the loan?

Question

Quizplus · Accepted Answer

The interest for the first month is calculated on the initial loan amount. Since the interest rate is 10% per year, the monthly interest rate is 10% / 12 = 0.8333%. Applying this to the $5,000 loan amount gives $5,000 * 0.8333% = $41.67.

On January 1, Pablo Borrows $5,000 with a Fixed Interest