After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $10,000 price,but financing through the dealer is no bargain. He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that most interest on automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $8,000 for a period of 4 years at an add-on interest rate of 11%. What is the total interest on Richard's loan? What is the total cost of the car? What is the monthly payment? What is the annual percentage rate (APR)?
Please refer attached file for better understanding of formulas.
What is the total interest on Richard's loan?
Total Interest on loan=Loan amount*rate*Number of months in the loan/12
What is the total cost of the car?
Total Cost of Car=Down Payment+ Loan amount+ Interest
What is the monthly ...
Solution describes the steps to calculate interest, monthly installment and APR for a add-on loan.