John loves sports cars and needs to finance 25000 of total p

John loves sports cars and needs to finance $25,000 of total purchase price of a new car. A loan is selected having 48 monthly level payments with a lender charging 6% convertible monthly. However, the lender informs the buyer that their policy is not to exceed a $500 monthly payment on any car loan. The buyer decides to accept the loan offer with the $500 payment and then decides to take out a second 12-month loan with a different lender at 7.5% convertible monthly to make up the shortfall not covered by the first loan. Find the amount of the monthly payment on the second loan.

Solution

PV = 25,000, FV = 0, N = 48, rate 6%/12

use PMT funciton in Excel

monthly payments required on first loan = 587.1257

so equivalent of 87.1257 per month is borrowed for 48 months

N = 48, FV = 0, rate = 0.5%, PMT = 587.1257

use PV function in Excel

value of second loan = 3,709.84

PV = 3,709.84, FV = 0, rate = 7.5%/12, N = 12

use PMT function in Excel

monthly payment on second loan = 321.86