Wallace and Sarah purchased furniture for their new home. They had two payment options. The first option is to pay a cash payment of $4200. The second option is to finance the furniture with a two year installment loan. The loan requires 12% down payment and 24 equal monthly payments of $195. According to this information what would be the finace charge on the loan.

Question

Wallace and Sarah purchased furniture for their new home. They had two payment options. The first option is to pay a cash payment of $4200. The second option is to finance the furniture with a two year installment loan. The loan requires 12% down payment and 24 equal monthly payments of $195. According to this information what would be the finace charge on the loan.

Answer 1

4200 * 0.12 = 504 down payment

4200 - 504 = 3696

195 * 24 = 4680

4680 - 3696 = 984 finance charge

Answer 2

To calculate the finance charge on the loan, we need to determine the total amount of money borrowed and subtract it from the total amount repaid over the 24-month period.

First, let's calculate the total price of the furniture with financing. The loan requires a 12% down payment, so the total loan amount will be 100% - 12% = 88% of the furniture price.

Since the cash payment option is $4200, the total price of the furniture would be $4200 / 0.88 = $4772.73 (rounded to two decimal places).

Next, let's calculate the total amount repaid over the 24-month period. The monthly payment is $195, so the total amount repaid will be $195 * 24 = $4680.

Finally, let's calculate the finance charge by subtracting the total amount borrowed from the total amount repaid: $4680 - $4772.73 = -$92.73.

Since the finance charge is negative in this case, it means that you will actually be repaying $92.73 less than the total amount borrowed over the course of the loan. This can be considered a discount or savings on the furniture purchase due to the financing option chosen.