E-Loan, an online lending service, recently offered 48 month auto loans at 5.7%
ID: 2449171 • Letter: E
Question
E-Loan, an online lending service, recently offered 48 month auto loans at 5.7% compounded monthly to applicants with good credit ratings. If you have a good credit rating and can afford monthly payments of $561, how much can you borrow from E-Loan? What is the total interest you will pay for this loan? E-Loan, an online lending service, recently offered 48 month auto loans at 5.7% compounded monthly to applicants with good credit ratings. If you have a good credit rating and can afford monthly payments of $561, how much can you borrow from E-Loan? What is the total interest you will pay for this loan?Explanation / Answer
Answer:
Given,
Numer of inatallments = 48 months
Rate of interest = 5.7% per annum compounded monthly = 0.475% per month or per period
Affordable monthly payments = $ 561;
To calculate the amount we can borrow, we shall calculate the present value of annuity of $ 561 for 48 periods with discounting factor at 0.475%
= $ 561 / (1 + 0.00475)48 = $ 24,028.03
Total Interest that will be paid = ($ 561 x 48) - $ 24,028.03 = $ 26,928 - $ 24,028.03 = $ 2,899.97 or $ 2,900
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