Early Repayment of a Loan Ray Flagg took out a 60-month fixed installment loan of $12,000 to open a new pet store. He paid no money down and began making monthly payments of $232. Rays business does better than expected and instead of making his 24th payment, Ray wishes to repay his loan in full. a) Determine the APR of the installment loan. b) How much interest will Ray save by paying off his loan early? c) What is the total amount due to pay off the loan?

Problem 11.1.200

Early Repayment of a Loan Ray Flagg took out a 60-month fixed installment loan of $12,000 to open a new pet store. He paid no money down and began making monthly payments of $232. Rays business does better than expected and instead of making his 24th payment, Ray wishes to repay his loan in full.

a) Determine the APR of the installment loan.

b) How much interest will Ray save by paying off his loan early?

c) What is the total amount due to pay off the loan?

Step-by-step solution

Step 1 of 6

Ray Flagg financed=$12,000 to open a new pet store without paying any down payment.

The total amount of installment is given by multiplying the number of months with amount paid monthly

Subtract the down payment from the total amount of installment it will give the finance charge

The finance charge = $13,920-$12,000 = $1,920

Thus, Ray has to pay a finance charge of $1,920.