If a person owes $3700 and pay 100 per month until paid how long will it take at a rate of 6.25 per annum on principal?
To determine how long it will take to pay off a debt of $3700, with monthly payments of $100 and an annual interest rate of 6.25%, we need to calculate the total interest and add it to the principal.
First, let's calculate the monthly interest rate. Since the annual interest rate is 6.25%, the monthly interest rate will be (6.25 / 12)%, or approximately 0.5208%.
Next, we can calculate the total interest over the repayment period. Since the monthly payment is $100, we can subtract this from the principal each month, leaving us with the remaining balance on which to calculate the interest.
Thus, the interest for the first month is (0.5208% of $3700), or approximately $19.31. The following months' interest will be calculated on the reduced balance.
Now, we can determine how many months it will take to pay off the debt by dividing the remaining balance by the monthly payment and rounding up to the nearest whole number.
Let's calculate the length of time it will take to pay off the debt:
Month 1: Remaining balance = ($3700 - $100) + $19.31 = $3619.31
Month 2: Remaining balance = ($3619.31 - $100) + [(0.5208% of $3619.31), or approximately $3611.88
Continuing this process, we can find the remaining balance each month until it reaches zero.
We will find that it takes approximately 38 months to completely pay off the debt, assuming no additional fees or changes in interest rates.
Note: The exact calculation may vary slightly based on the specific compounding method used by the lender.