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 Question from Cindy, a parent: A person takes out a car loan in the amount of $11,170.00 @ 4.5% interest. The person makes 17 payments of$500.00, then for the 18th payment (this person 'finds' some $) and pays off the whole thing. How much was their last (18th) payment? How much overall did they pay in principle? and interest? The person who made the initial loan then takes$11,156.25 and places it into a High Interest Savings Account @ 2.25% annually on Nov 18, 2003. How much is now in the High Interest Savings Account if no futher funds have been added to the account and no withdrawls have been made? Thanks for your help with this. I have been trying on and off for 3 years to figure this out. C

Cindy,

I'm assuming these payments are monthly. Thus the interest over one payment period is (4.5/12) = 0.375%

Just before the first payment, the person owes

$11,170 x 1.00375 =$11,211.89
After the payment it's $10,711.89 Get a sheet of graph paper and a calculator and do this sixteen more times, plotting the amount owing from month 0 [buying the car] to month 17. You don't have to draw the graph but it's a pretty curve and you'll get a better feel for how loans work over time. You can use Google or the calculator application on your computer. How much overall did they pay in principle? The principal (not "principle", though the words are related) is what was originally borrowed. It's all been repaid. and interest? Add up all the payments and subtract the principal. The person who made the initial loan then takes$11,156.25 and places
it into a High Interest Savings Account @ 2.25% annually on Nov 18, 2003.
How much is now in the High Interest Savings Account if no further funds
have been added to the account and no withdrawals have been made?

You should be able to do this yourself now, working one year at a time as above. If you know how to use a spreadsheet this gives a good way to do calculations like this.

If you do a lot of calculation like this there are special one-step formulae, mostly based on sums of geometric series, but they don't give a beginner much understanding of what's actually happening. Also, most high-end calculators can do this sort of calculation (look for a menu of "financial calculations" or something like that) and there are also applets on line that do them for you.

Good Hunting!
RD

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