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Cassandra is repaying an installment loan of $3,500 with 20 equal monthly payments of
$196 each. What is the annual percentage rate of the loan?

  • math -

    Using the formula of Interest equals principle times interest rate times term or
    I + P x R x T.

    Since we do not know the interest rate, using algebra, we get this formula to find out the interest rate:

    R + I/ P x T.
    So in your case it would be this:

    R = $420.00 / $3,500.00 x 1.333

    The $420.00 was derived from subtracting the total owed from the total payments. The term is 20 months or 1 8/12 years or 1 2/3 or 1.333

    Now do the math. $35000 x 1.33 = 4665.5
    $420 / 4665.5 = .09 or 9%

    Proof:
    I = 3500.x .09 x 1.333
    I = $419.90 or rounded $420.

    Hope this helped

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