loans intrest rate. please help me figure out this question?

Question

i am ready to throw in the towel! Can some one who gets this stuff help me??? please??-2 part question

1) wallace and sarah decided to purchase furniture for thier new home. they have two payment options. the 1st option is to pay cash-$4200. The 2nd option is to finance the furniture with a 2-yr installment loan. the loan requires a 12% down payment and 24 equal monthly payments of $195. accoring to this information what would be the finance charge on the loan?

2) what is the total deferred payment price of the furniture?

Answer 1

Just pay cash.

I misread your word problem at first. I see that you have to put 12% down.

12% of $4200 is $504.

$4200 - $504 = $3696

You will be financing $3696

$195 * 24 = $4680.

You're total payment would be $4680 + $505 = $5184. (ALMOST $1000 MORE THAN THE ORIGINAL PRICE !!!)

You're interest rate will be about 12.6% or so.

Answer 2

This is really pretty simple. You're letting the number freak you out. Just think about it logically.

1. They pay $4200 right now.

2. They make a down payment of 12% ($4200 * .12 = $504). Each month then for 24 months, they'll pay $195 ($195 * 24 = $4680). Add those two together ($504 + $4680) and their $4200 worth of furniture will cost them $5184 or $984 in total interest, i.e the finance charge.

Notice I did not subtract the down payment from the principal, because you told me how much the payments were. The payments are only on the balance still owed.

3. By deferred payment price, do you mean the total cost of the furniture? That's the $5184. If you mean something else, I don't know what.

I hope that helps.

Answer 3

Financed 3696
Interest 984
Loan payback 4680
Total cost of furniture 5184