A car dealer will sell you the $16,650 car of your dreams for $3,290 down and payments of $331.97 per month for 48 months. What is the APR? (Round your answer to the nearest tenth of a percent.)
To find the APR (Annual Percentage Rate) in this case, we can use the formula:
APR = [(Total Finance Charges / Total Amount Financed) * (12 / Number of Months)] * 100
First, we need to calculate the total amount financed. The total amount financed is the purchase price of the car minus the down payment. So,
Total Amount Financed = Purchase Price - Down Payment
= $16,650 - $3,290
= $13,360
Next, we need to calculate the total finance charges. The total finance charge is the sum of all the payments made over the loan duration minus the principal amount borrowed. In this case, the payments are given as $331.97 per month for 48 months. So,
Total Finance Charges = (Number of Payments * Payment Amount) - Total Amount Financed
= (48 * $331.97) - $13,360
= $15,893.56 - $13,360
= $2,533.56
Now, we can substitute the values into the APR formula:
APR = [($2,533.56 / $13,360) * (12 / 48)] * 100
= [(0.1898) * (0.25)] * 100
= 0.04745 * 100
= 4.745
Therefore, the APR in this case is approximately 4.7%.