You can afford a $400 per month car payment. You've found a 3 year loan at 2% interest. How big of a loan can you afford?
don't you have a formula for figuring loan payments?
To calculate the size of the loan you can afford, you need to consider the monthly payment and the interest rate. Let's break it down step by step:
Step 1: Convert the annual interest rate to a monthly rate.
To do this, divide the annual interest rate by 12. In this case, 2 divided by 12 equals 0.1667 (approximately).
Step 2: Calculate the duration of the loan in months.
Since it's a 3-year loan, multiply the number of years by 12 (months in a year). In this case, 3 multiplied by 12 equals 36.
Step 3: Use the monthly payment and monthly interest rate to calculate the loan amount.
The formula to calculate the loan amount is:
Loan Amount = Monthly Payment / (Monthly Interest Rate * (1 - (1 + Monthly Interest Rate)^(-Loan Duration in Months)))
In this case, the monthly payment is $400, the monthly interest rate is 0.1667, and the loan duration is 36 months.
Plugging the values into the formula:
Loan Amount = $400 / (0.1667 * (1 - (1 + 0.1667)^(-36)))
Using a calculator or spreadsheet, you can solve this equation and find out the loan amount you can afford.
The result of this calculation indicates the maximum loan amount you can afford with a $400 monthly payment and a 2% interest rate on a 3-year loan.