Question

You have just purchased a car and taken out a $50,000 loan. The loan has a 5-year term with monthly payments and an APR of 6%. How much will you pay in interest, and how much will you pay in principle, during the first month and second month? (Hint: construct an amortization table to show the breakdown of interest and principal paid in the first two months).

Answer 1

Interest Paid during the first month = $250.00

Interest Paid during the second month = $246.42

Principal Paid during the first month = $716.64

Principal Paid during the second month = $720.22

Monthly Loan Payment

Loan Amount (P) = $50,000

Monthly Interest Rate (n) = 0.50% per month [6% / 12 Months]

Number of months (n) = 60 Months [5 Years x 12 Months]

Monthly Loan Payment = [P x {r (1+r)ⁿ} ] / [( 1+r)ⁿ – 1]

= [$50,000 x {0.005 x (1 + 0.005)⁶⁰}] / [(1 + 0.005)⁶⁰ – 1]

= [$50,000 x {0.005 x 1.34885}] / [1.34885 – 1]

= [$50,000 x 0.006744] / 0.34885

= $966.64 per month

“Monthly Loan Payment = $966.64 per month”

Loan Amortization Schedule

Month	Beginning Amount	Payment	Interest Paid at 0.50%	Principal Paid	Ending Balance
1	$50,000.00	$966.64	$250.00	$716.64	$49,283.36
2	$49,283.36	$966.64	$246.42	$720.22	$48,563.14