You’re given with an auto loan from your credit union. Suppose the total loan you have is $45,000 and the current average market interest rate is 7.25% for the short-term loans. Answer the following questions:

1. Given that the stated interest as 7.25% per year on your loan, what is the monthly payment if you’re intended to have the loan for 5 years?
2. Suppose the credit union says that if you’d like to retire the loan earlier, say at the end of the 3rd year, you need to pay (say) $25,000 for the rest of the loan, would you take it given that you have no difficulty to generate the cash flow? Why or why not? (Hint: apply the amortization table to find out the balance of loan).
3. Suppose that the credit union also offers you another possible payment program that is they will give you a low 4% interest rate for the first two years and with a balloon payment at the end of the 2nd year as $28,000. (The balloon payment is a one-time payment that you have to pay it off or you have to re-finance by then.) What is your monthly payment for the first two years? Suppose the loan also carries a penalty charge that if you take the offer and can not pay off the loan with $28,000 at the end of 2^nd year, you’re subject to a 10% interest rate in refinancing the residual balance of the loan. What will be your monthly payment for the residual balance starting from the 3^rd year supposed that you did not arrange the $28,000 lump-sum payment? What will be the overall payments you owe to the credit union if you did not have $28,000 at the end of 2^nd year?

Answer rating: 100% (QA)

Auto Loan Payment Calculations 1 Monthly Payment with 725 Interest Loan amount L 45000 Interest rate R 725 pa converted to monthly 725 12 06042 Loan t... View the full answer