A company offered 60 month auto loan at 39 compounded month

A company offered 60 month auto loan at 3.9 % compounded monthly to applicants with good credit. If you have a good credit rating and can afford monthly payments of $524, how much can you borrow? What is the total interest paid for this loan?

Solution

Formula : P = r(PV)/[ 1 - (1+r)^-n

where p = monthly payment ; PV = present value of loan ; r = rate per period ; n = no. of periods

524 = (0.039*PV)/[ 1- (1+0.039)^-60 ]

= 0.039PV/0.899

PV = $ 12082.78 Borrowed amount

Total paid amount = 524*60 = $ 31440

Total interes = $ 31440 - $ 12082.78 = $ 19357.22