The \"No Credit Refused\" used car dealer offers the following automobile financ

Question

The "No Credit Refused" used car dealer offers the following automobile finance opportunity. Monthly payments on the loan are 4% of the original loan amount for 36 months. That is, a loan of $10,000 would have a monthly payment of 4% of $10,000 or $400 every month until paid off. In addition loans require the up-front payment of a $1,000 loan processing fee that is not included in the loan amount.

For an original loan of $25,000, what is the NAR with monthly compounding? Show excel formulas/calculations.

Explanation / Answer

Loan amount = 25000

Monthly installment = 25000*4% i.e 1000

Total amount paid = 1000*36 i.e 36000

Interest paid = Total amount - Principal amount

= 36000-25000 i.e 11000

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