Megan takes out a car loan for $13,000. She intends to make monthly payments for
ID: 3121212 • Letter: M
Question
Megan takes out a car loan for $13,000. She intends to make monthly payments for 5 years to pay off her loan. If the bank charges her an annual interest rate of 4.2% computed monthly on the loan balance, how much will her monthly payments be? Show all work Megan takes out a car loan for $13,000. She intends to make monthly payments for 5 years to pay off her loan. If the bank charges her an annual interest rate of 4.2% computed monthly on the loan balance, how much will her monthly payments be? Show all workExplanation / Answer
The formula for calculating EMI is:
EMI = (P * I) * (1 + I) ^ N / [(1+I) ^ N - 1]
P = Loan amount availed from the bank = $13000
I = Interest rate charged by the bank per month = 4.2%/12 = 0.35%
N = Number of installments = 5*12 = 60
EMI = (13000 * 0.35) * (1 + 0.35) ^ 60 / [(1+0.35) ^ 60 - 1] = 4450
Hence the EMI for this car loan would be $4450.