Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. Sears offers them an installment loan at 13% (add-on rate). If the refrigerator at Sears costs $1,598 plus 5% sales tax, and Karen and Wayne plan to pay for the refrigerator for 3 years, what is the monthly payment?
Ridiculous! They shouldn't be buying such an expensive refrigerator when they don't have much money and have to borrow at a high interest rate.. Sears sells good refrigerators at one-third that price.
1598 * 1.05 = $16,779 total price
I = PRT
I = 16,779 * 0.13 * 3 = 6,543.81
(16,779 + 6,543.81) / 36 = ________ monthly payment
To calculate the monthly payment on the installment loan, we need to find the total amount borrowed, including interest, and then divide it by the number of months in the loan term.
First, let's calculate the amount borrowed, including interest. The add-on rate means that the interest is added to the principal loan amount upfront. In this case, the interest rate is 13%. So, the interest amount is calculated as 13% of the principal loan amount.
Principal loan amount = cost of the refrigerator + sales tax
= $1,598 + (5% of $1,598)
= $1,598 + (0.05 * $1,598)
= $1,598 + $79.90
= $1,677.90
Interest amount = 13% of principal loan amount
= 0.13 * $1,677.90
= $218.21
Total amount borrowed = principal loan amount + interest amount
= $1,677.90 + $218.21
= $1,896.11
Next, we need to calculate the monthly payment. Since the loan term is 3 years, which is equivalent to 36 months, we divide the total amount borrowed by 36.
Monthly payment = Total amount borrowed / Loan term (in months)
= $1,896.11 / 36
≈ $52.67
Therefore, the monthly payment for the refrigerator loan would be approximately $52.67.