Question

Ross purchased a new commercial vehicle today for $25,000 with a down payment of $3,000. The amount was financed using a five-year loan with a 4 percent interest rate (compounded monthly). How much will Ross owe on his vehicle loan after making payments for three years?

Answer 1

The answer is $9,330.21

Calculations and explanations:

Here the 1st step is to compute the monthly payments. We can do this using the "PMT" function in excel.

Type the following syntax: PMT(4%/12, 60, 22000). This will yield an amount of $405.16. Thus Ross will pay $405.16 on a monthly basis.

Note that 60 = 5 years * 12 months per year and 22000 = 25000-3000. The next step is to make an amortization table as shown below:

Month	Amount of loan outstanding at the beginning of the month	Monthly payments	Interest	Principal repaid	Amount of loan outstanding at the end of the month
1	22,000.00	405.16	73.33	331.83	21,668.17
2	21,668.17	405.16	72.23	332.94	21,335.23
3	21,335.23	405.16	71.12	334.05	21,001.19
4	21,001.19	405.16	70.00	335.16	20,666.03
5	20,666.03	405.16	68.89	336.28	20,329.75
6	20,329.75	405.16	67.77	337.40	19,992.35
7	19,992.35	405.16	66.64	338.52	19,653.83
8	19,653.83	405.16	65.51	339.65	19,314.18
9	19,314.18	405.16	64.38	340.78	18,973.40
10	18,973.40	405.16	63.24	341.92	18,631.48
11	18,631.48	405.16	62.10	343.06	18,288.42
12	18,288.42	405.16	60.96	344.20	17,944.22
13	17,944.22	405.16	59.81	345.35	17,598.87
14	17,598.87	405.16	58.66	346.50	17,252.37
15	17,252.37	405.16	57.51	347.66	16,904.71
16	16,904.71	405.16	56.35	348.81	16,555.90
17	16,555.90	405.16	55.19	349.98	16,205.92
18	16,205.92	405.16	54.02	351.14	15,854.78
19	15,854.78	405.16	52.85	352.31	15,502.46
20	15,502.46	405.16	51.67	353.49	15,148.97
21	15,148.97	405.16	50.50	354.67	14,794.31
22	14,794.31	405.16	49.31	355.85	14,438.46
23	14,438.46	405.16	48.13	357.04	14,081.42
24	14,081.42	405.16	46.94	358.23	13,723.20
25	13,723.20	405.16	45.74	359.42	13,363.78
26	13,363.78	405.16	44.55	360.62	13,003.16
27	13,003.16	405.16	43.34	361.82	12,641.34
28	12,641.34	405.16	42.14	363.03	12,278.32
29	12,278.32	405.16	40.93	364.24	11,914.08
30	11,914.08	405.16	39.71	365.45	11,548.63
31	11,548.63	405.16	38.50	366.67	11,181.96
32	11,181.96	405.16	37.27	367.89	10,814.07
33	10,814.07	405.16	36.05	369.12	10,444.95
34	10,444.95	405.16	34.82	370.35	10,074.61
35	10,074.61	405.16	33.58	371.58	9,703.03
36	9,703.03	405.16	32.34	372.82	9,330.21

As we can see that amount of loan outstanding at the end of 36th month i.e. 3 years is $9,330.21