SOLUTION: You can afford a $450 per month car payment. You've found a 4 year loan at 3% interest. How big of a loan can you afford?
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-> SOLUTION: You can afford a $450 per month car payment. You've found a 4 year loan at 3% interest. How big of a loan can you afford?
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Monthly payment formula
P = (L*i)/(1 - (1+i)^(-n))
where,
P = monthly payment
L = loan amount
i = interest rate per month
n = number of months
When solving for variable L we get
L = P*(1 - (1+i)^(-n))/i
In this case we have these inputs
P = 450
i = 0.03/12 = 0.0025
n = 12*4 = 48
So,
L = P*(1 - (1+i)^(-n))/i
L = 450*(1 - (1+0.0025)^(-48))/0.0025
L = 20330.41258572
L = 20330.41 is the most you can borrow.
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