Chapter 7- Question 8

After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $14,400 price, but financing through the dealer is no bargain. He has $1,400 cash for a down payment, so he needs a loan of $13,000. In shopping at several banks for an installment loan, he learns that interest on most 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 $13,000 for a period of four years at an add-on interest rate of 10 percent.

A) What is the total interest on Richards loan?

B) What is the total cost of the car?

C) What is the monthly payment?

D) What is the annual percentage rate (APR)?