Posted by **Adam** on Wednesday, February 23, 2011 at 7:08pm.

A guy buys a car for $29,000 and finances it with a four year, 7% APR with monthly payments and compounding. How much of his third payment goes toward repaying principal?

- Math/Finance -
**Reiny**, Wednesday, February 23, 2011 at 7:54pm
first you need the monthly payment

i = .07/12= .00583333

n = 4(12) = 48

29000 = paym( 1 - 1.00583333^-48)/.00583333

payment = $694.44

amount owing after 2 payments

= 29000(1.00583333)^2 - 694.44(1.0058333^2 - 1)/.00583333

= 27946.39

interest on that is 163.02

so principal of 3rd payment = 694.44 - 163.02 = 531.42

or, we could set up a chart

payment# paym interest principal balance

...0.....................................................29000.00

...1............694.44..169.17 ..525.27..28474.73

...2............694.44..166.10 ..528.34..27946.39

...3............694.44..163.02 ..**531.42**..27414.97

notice the principal in the third row is 531.42 , exactly to the penny of the answer to my first method.

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