A couple buys a $1,300 cappuccino maker that they cant currently afford to pay f

Question

A couple buys a $1,300 cappuccino maker that they cant currently afford to pay for in full. They put $200 down ans agree to pay the balance at 10% add-on interest for 2.5 years.

a) How much will they have to repay in this loan?

b) What will be their monthly payment be?

c) How much in total will they end up paying for their purchase?

d) What percent ( rounded to the nearest tenth) above the purchase price do they end up paying for the cappuccion maker?

e) If they had gotten their loan at 10% compund interest instead of add-on, how much interest would they have saved?

Explanation / Answer

Answer a: $1350 (As explained below)

Down payment was made for $200 out of $1300. So on the remainder $1100, the 10% add-on interest will be:

I = PRT = 1100 X 0.10 X 2.5 = $250

A = P + I = $1100 + $250 = $1350

Answer b: $45 (As explained below)

Monthly payment = $1350 / 30 months = $45

Answer c: $1550 (As explained below)

Total for the purchase = $200 +$1350 = $1550

Answer d: 19.2% (As explained below)

Percent paid above the purchase price = ($1550 - $1300) x 100 / $1300 = 19.2%

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