if anne buys a car for $18,000 with a down - payment of $2,000 and is given a 3 - year loan with an apr of 5…

if anne buys a car for $18,000 with a down - payment of $2,000 and is given a 3 - year loan with an apr of 5 percent and monthly payments of $480, what is the dollar amount of the finance charge on this loan?\na. $280\nb. $1,200\nc. $1,280\nd. $1,400

if anne buys a car for $18,000 with a down - payment of $2,000 and is given a 3 - year loan with an apr of 5 percent and monthly payments of $480, what is the dollar amount of the finance charge on this loan?\na. $280\nb. $1,200\nc. $1,280\nd. $1,400

Answer

Explanation:

Step1: Calculate the loan amount

The car cost is $18,000 and the down - payment is $2,000. So the loan amount $L$ is $18000 - 2000=16000$.

Step2: Calculate the total amount repaid

The loan is for 3 years with monthly payments of $480$. There are $3\times12 = 36$ months. So the total amount repaid $T$ is $480\times36 = 17280$.

Step3: Calculate the finance charge

The finance charge $F$ is the total amount repaid minus the loan amount. So $F=T - L=17280-16000 = 1280$.

Answer:

C. $1,280