Question

You plan to purchase items for $ 2900 and will finance the cost with a fixed installment loan. The seller tells you that you will have to pay $100 per month for 36 months. a. What is the finance charge? b. What is the interest rate? (Round to the nearest hundredth)

Answer 1

We know that the items cost $2900 at the end of the loan you will have to pay $3600.

The simple interest formula is given as:

$A=P(1+r)$

where P is the principal, r is the interest rate.

In this case we have:

$\begin{gathered} 3600=2900(1+r) \\ 3600=2900+2900r \\ 2900r=3600-2900 \\ r=\frac{700}{2900} \\ r=0.24 \end{gathered}$

With this we can conclude that:

The finance charge is $700.

The interest rate over the total loan is 2.4% (this means that per month we are going to pay an interest rate of 0.066%).