You just bought a car and borrowed $15,000 for 5 years at 8% APR.Using the simple interest method;by the time you pay off this loan your total finance costs will be closest to which of the following?

Question

Quizplus · Accepted Answer

Using the simple interest method, the total finance cost can be calculated as:

Total finance cost = Principal x (interest rate/100) x time

= $15,000 x (8/100) x 5

= $6,000

However, this calculation assumes that the interest is compounded annually, which is not the case with simple interest.

With simple interest, the interest is only calculated on the principal amount and not on the accumulated interest. Therefore, the actual total finance cost will be lower than $6,000.

To calculate the actual total finance cost, we can use the formula:

Total finance cost = Principal x (interest rate/100) x time + Principal

= $15,000 x (8/100) x 5 + $15,000

= $3,000 + $15,000

= $18,000

So, the closest answer is B) $3,249, which is less than the actual finance cost of $18,000.

You Just Bought a Car and Borrowed $15,000 for 5