Auto Insurance monthly interest rate. Having trouble

Using compound interest, the monthly payment would be $206.37 and the total cost of the loan would be $12,382. In summary, the difference between paying the $11,250 up front versus taking a loan out for it is that taking a loan would result in an additional cost of $1,132 over 5 years due to compound interest.
  • #1
YODA0311
26
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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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  • #2
You reduce the loan during those 5 years, and reduce interest as well.
 
  • #3
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.
 

1. What factors affect the monthly interest rate for auto insurance?

The monthly interest rate for auto insurance is affected by several factors, including your driving record, the type of car you drive, your age and gender, your location, and your credit score. Insurance companies use these factors to assess your risk level and determine the appropriate interest rate for your policy.

2. How can I lower my monthly interest rate for auto insurance?

There are several ways to potentially lower your monthly interest rate for auto insurance. These include maintaining a clean driving record, choosing a car with a good safety rating, bundling your insurance policies, increasing your deductible, and improving your credit score. You can also shop around and compare rates from different insurance companies to find the best deal.

3. Is it possible to negotiate the monthly interest rate for auto insurance?

The monthly interest rate for auto insurance is typically not negotiable. Insurance companies use complex algorithms and data to determine rates, and they are not likely to deviate from those rates for individual customers. However, you can still try to negotiate by asking for discounts or mentioning any special circumstances that may affect your rate.

4. Can I change my monthly interest rate for auto insurance once I've signed up for a policy?

Yes, it is possible to change your monthly interest rate for auto insurance. You can do this by adjusting your coverage, increasing your deductible, or taking advantage of any discounts that may become available to you. However, keep in mind that making changes to your policy may result in fees or penalties, so it's important to carefully consider your options before making any changes.

5. What happens if I miss a monthly interest rate payment for my auto insurance?

If you miss a monthly interest rate payment for your auto insurance, the consequences may vary depending on your insurance company and your policy. You may face a late fee or a cancellation of your policy. It's important to contact your insurance company as soon as possible if you are unable to make a payment, as they may be willing to work with you to find a solution.

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