Question

Mark borrows $15,000 to buy a new car. His loan has an interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49. If instead his loan had an interest rate of 8%, how much more would he have paid in interest by the time he finished repaying his loan in 60 months?

Answer 1

Let us find the revised mothly installment payable

when the interest rate is 8% pa against 6.5% pa

Formula for loan amortization =

A= [i*P*(1+i)^n]/[(1+i)^n-1]

A = periodical installment=??

P=Loan amount =15,000

n=60 months

i= interest rate per period =8% pa=0.6667% per month

A=(0.6667%*15000*1.006667^60)/(1.006667^60-1)

A=$304.15

Additional Interest Calculation	a	b	c	d
	Monthly Installment	Total Payment in 60 Installments=a*60	Principal Payable	Total Interest Payable=b-c
Loan with revised condition of 8% interest =	$                       304.15	$             18,249.00	$           15,000.00	$          3,249.00
Loan with earlier condition of 6.5% pa monthly compounded rate	$                       293.49	$             17,609.40	$           15,000.00	$          2,609.40
		Additional Interest payable =		$             639.60

So total additional interest payable with revised loan conditions over 60 months period is =

$                 639.60