Monthly Payment for Car Financing | RipOff Dealers, Inc.

Monthly Payment for Car Financing

Prev Question Next Question

Question

RipOff Dealers, Inc. offers a financing plan for car purchases, charging 2% per month. If a car costs $30,000, what's the monthly payment you will have to make - starting a month from now - if you need 5 years to pay off the debt on the car?

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

C

The payments constitute an ordinary annuity. The present value of an n-period annuity that starts paying at the end of the current period equals PV = (C/r)*[1 - 1/(1

+r)^n] where C is the payment per period and r is the one-period interest rate. In this example, the annuity is over 5*12 = 60 periods and the per period rate equals

2%. So the present value of the payments equals (C/0.02)*[1 - 1/1.02^60] = 30,000 (given). Solving for C gives the per month payment equal to $863.

Prev Question Next Question