you borrow $5,000 from your parents to purchase a used car. The arrangements of the loan are such that you make payments of $250 per month toward the balance plus 1% interest on the unpaid balance from the previous month. (a) Find the first year monthly payments and the unpaid balance after each month. (b) Find the total amount of interest paid over the term of the loan.

Question

Reiny · Accepted Answer

create a table (amortization table)

time-interest-payment-balance
now ---- 0 ------0 ------ 5000.00
1 ---- 50.00 ---300.00 - 4475.00
2 ---- 44.75 ---294.75 - 4225.00
3 ---- 42.25 ---292.25 - 3975.00
4 ---- 39.75 ---289.75 - 3725.00
5 ---- 37.25 ---287.25 - 3475.00

etc

Since the monthly payment varies and is the total of
250 + interest, the monthly balance is reduced by exactly $250 , and it will take 20 months to pay it off.
This is not a usual procedure, the payments usually are the same for each month, and the calculations do not fit into one of the four basic compound interest formulas.