Financial Planning Cases

The Johnsons' Credit Questions

They are considering trading their car in for a

newer used vehicle so that Harry can have

dependable transportation for commuting to

work. The couple still owes $4,950 to the

credit union for their current car, or $275 per

month for the remaining 18 months of the 48-

month loan. The trade-in value of this car plus

$1,000 that Harry earned from a freelance

interior design job should allow the couple to

pay off the auto loan and leave $1,200 for a

down payment on the newer car. The

Johnsons have agreed on a sales price for the

newer car of $26,000.

(b) Calculate the monthly payment for a loan

period of three, four, five, and six years at 7

percent APR. Describe the relationship

between the loan period and the payment

amount.

Monthly Installment Payments for a Loan (Principal and Interest Required to Repay $1,000 ) 'To illustrate, assume an automobile loan of 514,000 at 8 percent for five years To repay 31,000 , the monthly payment. is 520 28, therefore, multiply $20.28 (8\%, cow and 60 -month column) by 14 to give a monthly payment of $283.92. For amounts other than exact $1,000 increments, simply use decimals. For example, for a loan of $14,500, the multiplier would be 14.5 TFor fractional interent rates of 55,6.5,7.5, and so on, simply take a monthly payment haifway between the wholenumber APR payments. For example, the payment for 48 months at 9.5 percent is $25.12,$25.36524.88=50.48 50.48/2=50.24,50.24+524.88=525,12)