Loan Payments You wish to buy a $25,000 car. The dealer offers you a 4-year loan with a 9 percent APR. What are the monthly payments? How would the payment differ if you paid interest only? What would the consequences of such a decision be?

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For a loan of $25,000 with an APR of 9 percent over four years, the monthly payment would be about $602. Calculate this payment by taking both the principal amount and the interest and spreading it out evenly over the term of the loan.

Your monthly payment would be lower, at $208 per calendar month, if you only paid the interest. This decision has significant financial consequences, as you won’t be able to pay down the principal during that time. You will also find yourself in an inferior position financially if you make regular payments for both principal and interest. It could lead to higher costs in the long run as interest continues to accumulate, resulting in a larger balance of debt. Failure to make timely repayments can lead to lenders taking legal actions against the borrower, which will have a further negative impact on their finances.

In conclusion , while choosing pay off loans through interest-only route may appear attractive short-term due reduced repayment amounts – long-term implications such strategy can have should not be overlooked . Before making a commitment to purchase a car, buyers should consider all options before they commit funds. This will ensure that the outcome is as good as possible without placing too much strain on their personal finances.