How Long Will It Take to Pay Off a $5,000 Loan from Friendly Loans?
Loan Repayment Calculation
You have just received an offer in the mail from Friendly Loans. The company is offering to loan you $5,000 with low monthly payments of $105 per month. If the interest rate on the loan is an APR of 15.6 percent compounded monthly, how long will it take for you to pay off the loan?
Final answer:
To calculate how long it will take to pay off the loan, we can use a logarithmic formula that takes into account the loan amount, monthly payment, and interest rate. Plugging in the values provided, it will take approximately 5 years and 3 months to pay off the loan.
Explanation:
To calculate how long it will take to pay off the loan, we need to use the formula:
Time (in years) = Log1+r(A/P) / Log1+r(1+r)
where A is the loan amount, P is the monthly payment, r is the monthly interest rate, and Log represents the logarithm function.
Plugging in the given values, we get:
Time = Log1+0.156/12(5000/105) / Log1+0.156/12(1+0.156/12)
Using a calculator, we find that the time it will take to pay off the loan is approximately 5 years and 3 months.
How can you calculate the time to pay off a loan using the formula provided? To calculate the time to pay off a loan, you can use the formula Time = Log1+r(A/P) / Log1+r(1+r), where A is the loan amount, P is the monthly payment, and r is the monthly interest rate. By plugging in these values, you can determine how long it will take to pay off the loan.