Question

Round any decimals to the nearest penny.

Secured Unsecured
Credit APR APR
Excellent 4.75% 5.50%
Good 5.00% 5.90%
Average 5.85% 6.75%
Fair 6.40% 7.25%
Poor 7.50% 8.40%

Use the table above for interest rate questions.
If you improved your credit score to good and paid $1,500 on your purchase from question 11, (car for $12,465.00 plus 5.65% sales tax) how much interest could you save in the first month?

Answer 1

Assuming the car loan is secured and your original score was Average (secured APR 5.85%), improving to Good (secured APR 5.00%):

1. Sales tax: 12,465.00 × 5.65% = 704.2725 → $704.27
Total price = 12,465.00 + 704.27 = $13,169.27

2. Amount financed after $1,500 down = 13,169.27 − 1,500.00 = $11,669.27

3. Interest in first month:
- At 5.85% APR: monthly rate = 0.0585/12 = 0.004875
Interest = 11,669.27 × 0.004875 = $56.89
- At 5.00% APR: monthly rate = 0.05/12 = 0.0041666667
Interest = 11,669.27 × 0.0041666667 = $48.62

4. Interest saved first month = 56.89 − 48.62 = $8.27

You would save $8.27 in interest in the first month.