Question

Raj purchased a car for $6,000. His monthly payments are $150 a month, and the car loan has an annual percentage rate of 8%. What part of Raj's first monthly payment is going to pay down the principal of his loan?

Question 7 options:

$40


$80


$110


$150

Answer 1

To calculate how much of Raj's first monthly payment is going toward paying down the principal of his loan, we first need to determine the monthly interest owed on the loan balance.

1. Calculate the annual interest rate:
- The annual percentage rate (APR) is 8%, so the monthly interest rate is:
\[
\text{Monthly interest rate} = \frac{8\%}{12} = \frac{0.08}{12} = 0.0066667
\]

2. Calculate the interest for the first month on the initial loan amount ($6,000):
\[
\text{Interest for first month} = \text{Loan amount} \times \text{Monthly interest rate} = 6000 \times 0.0066667 \approx 40
\]

3. Now, subtract this interest from Raj's total monthly payment to find out how much goes toward the principal:
\[
\text{Principal payment} = \text{Monthly payment} - \text{Interest for first month} = 150 - 40 = 110
\]

Thus, the part of Raj's first monthly payment that goes to pay down the principal of his loan is **$110**.

So the answer is:
**$110**