Bryan want to buy a used car for $25,000.The dealer will finance it for 3 years at 7% APR with monthly payments.If Bryan makes all of the payments on time and pays the loan off in three years as agreed in the contract,how much interest would he have paid over the life of the loan?

Question

Quizplus · Accepted Answer

To calculate the total interest paid over the life of the loan, we can use the formula for the monthly payment on an installment loan, which is P = [r*PV] / [1 - (1 + r)^-n], where P is the monthly payment, r is the monthly interest rate (annual rate divided by 12), PV is the present value or principal amount of the loan, and n is the total number of payments (months). For Bryan's loan: PV = $25,000, annual interest rate = 7% (or 0.07), so the monthly interest rate r = 0.07 / 12, and n = 3 years * 12 months/year = 36 months. Plugging these values into the formula gives the monthly payment. Then, multiply the monthly payment by the total number of payments (36) to get the total amount paid over the life of the loan. Subtract the principal ($25,000) from this total amount paid to find the total interest paid. Calculating this, Bryan would have paid $2,789.39 in interest over the life of the loan.

Bryan Want to Buy a Used Car for $25,000