You purchase a hot tub costing $4,600 by taking out a 13% add-on interest installment loan. The loan requires a 15% down payment and equal monthly payments for 4 years. How much are your monthly payments?
To calculate the monthly payments for the hot tub loan, we need to follow these steps:
Step 1: Calculate the down payment.
The loan requires a 15% down payment, so we need to find 15% of $4,600:
Down Payment = 15% of $4,600
Down Payment = 0.15 * $4,600
Down Payment = $690
Step 2: Calculate the loan amount.
The loan amount is the remaining balance after the down payment is subtracted from the purchase price:
Loan Amount = Purchase Price - Down Payment
Loan Amount = $4,600 - $690
Loan Amount = $3,910
Step 3: Calculate the total cost of interest.
The loan has an add-on interest rate of 13%. To find the total cost of interest over the four-year term, we need to calculate the interest per year and multiply it by four:
Interest per year = Loan Amount * Interest Rate
Interest per year = $3,910 * 0.13
Interest per year = $508.30
Total interest over four years = Interest per year * 4
Total interest over four years = $508.30 * 4
Total interest over four years = $2,033.20
Step 4: Calculate the total amount to be paid back.
The total amount to be paid back is the sum of the loan amount and the total interest:
Total amount to be paid = Loan Amount + Total interest over four years
Total amount to be paid = $3,910 + $2,033.20
Total amount to be paid = $5,943.20
Step 5: Calculate the monthly payments.
To find the monthly payments, divide the total amount to be paid back by the number of months (48 in this case, considering 4 years of equal monthly payments):
Monthly payments = Total amount to be paid / Number of months
Monthly payments = $5,943.20 / 48
Monthly payments ≈ $123.40
Therefore, your monthly payments for the hot tub loan would be approximately $123.40.