Question

To become more eco-friendly, Karen is buying a Tesla. She has negotiated a price of $31,900 and will trade in her old car for $4,500. She will put another $900 down (on top of the trade-in value of her old car) and then borrow the remainder at 5% annual nominal interest rate, compounded monthly, for 4 years. Calculate the monthly payments of the car loan.

Answer 1

Borrowed amount = 31,900 - 4,500 - 900 = $26,500

Monthly interest (i) = 5% / 12 = 0.417% or 0.00417

n = 4 * 12 = 48

Monthly payment = P[{i (1 + i)ⁿ} / {(1 + i)ⁿ - 1}]

                            = 26,500[{0.00417 (1 + 0.00417)⁴⁸} / {(1 + 0.00417)⁴⁸ - 1}]

                             = 26,500(0.00509 / 0.2212)

                             = $609.79            [we can round it as $610]

The monthly payments of the car loan is $610.