Calculating Loan Payoff Time from Friendly Loans Offer
Loan Offer from Friendly Loans
You have just received an offer in the mail from Friendly Loans. The company is offering to loan you $4,500 with low monthly payments of $80 per month. If the interest rate on the loan is an APR of 14.3 percent compounded monthly, how long will it take for you to pay off the loan?
Question:
How long will it take for you to pay off the loan from Friendly Loans?
Answer:
It takes 8 years 4 months to pay off the loan.
Explanation:
Use Time Value of Money Techniques to find N (the period it takes to pay off the Principle Amount)
Using a financial calculator, enter the data as follows
PV = $4,500
PMT = - $80 × 12 = - $960
P/YR = 1
R = 14.3 %
FV = $0
Therefore, N = 8.3020
Conclusion: It takes 8 years 4 months to pay off the loan.