You decide to buy a $25,000 car and can afford to bring a down payment of $3,000. The dealership offers you a loan with a term of three years at an APR of 5.6%. What is your monthly payment?
To find your monthly payment, you can use the formula for calculating the monthly payment for a loan:
M = P * (r * (1 + r)^n) / ((1 + r)^n - 1)
Where:
M = Monthly payment
P = Principal amount (loan amount remaining after down payment)
r = Monthly interest rate (APR divided by 12)
n = Number of monthly payments (loan term in years multiplied by 12)
First, calculate the principal amount:
Principal amount = Car price - Down payment
Principal amount = $25,000 - $3,000
Principal amount = $22,000
Next, calculate the monthly interest rate:
Monthly interest rate = APR / 12
Monthly interest rate = 5.6% / 12
Monthly interest rate = 0.4633%
Then, calculate the number of monthly payments:
Number of monthly payments = Loan term in years * 12
Number of monthly payments = 3 years * 12
Number of monthly payments = 36 months
Now, substitute the values into the formula:
M = $22,000 * (0.4633%(1 + 0.4633%)^36) / ((1 + 0.4633%)^36 - 1)
Using a calculator to evaluate this expression, the monthly payment is approximately $654.29.
Therefore, your monthly payment for the car loan would be $654.29.