Jackson wants to buy a new car for a price of 28500 USD. He goes to the dealership to get a loan to finance the purchase. To be eligible, Jackson must make an initial down payment equal to 15% of the price of the car.
The dealership offers him a 5 years loan for the remaining balance, with a 4% nominal interest rate per annum, compounded monthly. Jackson will repay the loan in fixed payments at the end of each month.
a. Find the original amount of the loan after the down payment is paid.
b. Calculate Jackson’s monthly payment for this loan.
c. Using your answer in a and b, calculate the total amount Jackson will pay over the life of the loan.
d. Find the total number of monthly payments he will need to make to pay off the loan.
e. This strategy will result in Jackson final payments being less than 600 USD.
f. Determine Jackson final payment amount.
g. Determine the total amount Jackson will save by making the higher monthly payment.