Marvin borrows $2,500 from the Shady Dealings Loan Company. He is told the interest rate is merely 2%/month and his payment is computed as follows:
Loan period
= 30 month
Interest = 30(0.02)($2,500)
= $1,500
Credit investigation and insurance
= $50
Total amount owned = $2,500 + $1,500 + $50
= $4,050
Size of payment = $4,050/30
=$135/month
What effective interest rate is paid for the transaction?
1 answer