Auto Insurance monthly interest rate. Having trouble

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SUMMARY

The discussion centers on calculating the monthly payment for a $11,250 car loan at an interest rate of 3.840% over 5 years (60 months). The initial calculation using the simple interest formula resulted in a monthly payment of $223.50, totaling $13,410. However, a comparison with Bankrate.com revealed a monthly payment of $206.37, leading to a total cost of $12,382. The discrepancy arises from the use of simple interest instead of compound interest, which is the method employed by Bankrate.com.

PREREQUISITES
  • Understanding of simple and compound interest calculations
  • Familiarity with loan amortization concepts
  • Basic financial literacy regarding loans and payments
  • Knowledge of using financial calculators or online tools like Bankrate.com
NEXT STEPS
  • Research how to calculate compound interest for loans
  • Learn about loan amortization schedules and their impact on monthly payments
  • Explore financial calculators available on websites like Bankrate.com
  • Study the differences between simple and compound interest in financial contexts
USEFUL FOR

This discussion is beneficial for individuals considering taking out a car loan, financial advisors, and anyone looking to understand the implications of interest calculations on loan payments.

YODA0311
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1. If you took out a $11,250 car loan at 3.840 % for 5 yrs (60 months), (a) what would be the monthly payment? (b) what is the difference between paying the $11,250 up front versus taking a loan out for it?



2. Interest formula: I= P r T



3. (a) I= (11,250)(.03840)(5)
I= 2160
add 11,250+2160=$13,410
$13,410/60= $223.50 per month
(b) If you were to take out a loan, it would cost you an additional $2160 over 5 yrs totalling $13,410.

However, I went onto bankrate to double check my answer and they came up with $206.37 per month. Totalling $12,382 for the overall cost of the loan. Therefore, it would be an additional $1,132 over 5 yrs.

Where did I go wrong in my calculations? Bankrate.com or my formula?
Thank You
 
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You reduce the loan during those 5 years, and reduce interest as well.
 
YODA0311 said:
1. If you took out a $11,250 car loan at 3.840 % for 5 yrs (60 months), (a) what would be the monthly payment? (b) what is the difference between paying the $11,250 up front versus taking a loan out for it?

2. Interest formula: I= P r T

3. (a) I= (11,250)(.03840)(5)
I= 2160
add 11,250+2160=$13,410
$13,410/60= $223.50 per month
(b) If you were to take out a loan, it would cost you an additional $2160 over 5 yrs totaling $13,410.

However, I went onto bankrate to double check my answer and they came up with $206.37 per month. Totaling $12,382 for the overall cost of the loan. Therefore, it would be an additional $1,132 over 5 yrs.

Where did I go wrong in my calculations? Bankrate.com or my formula?
Thank You

It looks like you used simple interest. I suspect you should use compound interest, which is what Bankrate.com likely does.
 

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