Surely for a time frame of 5 years, simple interest would not be used.
so i = .13/12 = .0108333...
amount financed = 2630(.85) = 2235.50
amount of loan ---- x
x(1 - 1.0108333..^-60)/.0108333..) = 2235.5
I get
x = $ 50.86
Apparently it used to be done this way, yielding a payment which is much too high.
interest on the "total" amount = 2235.5(.13)(5) = 1453.08
amount owing (as if you made no payments) = 1453.08 + 2235.5 = 3688.58
monthly payment = 3688.58/60 = 61.47
I even found a video showing this method:
https://www.youtube.com/watch?v=NwJ52OkkmXM
Scott purchases a piano costing $2,630 by taking out a 13% add-on interest installment loan. The loan requires a 15% down payment and equal monthly payments for 5 years. How much are Scott's monthly payments?
1 answer