The “Fly By Night” Used Car Lot uses the following to illustrate their 8.1% finance plan on a car paid over 3 years.
Cost of the car: $10800
8.1% finance charge: $2624.4 (that is, 8.1%/year×$10800×3 years)
Total cost: $13424.4
Monthly payment: $13424.4/36=$372.9.
The first payment must be made on the date of purchase. Moreover, the dealer will pay you back 5% of the cost of the car at the end of 4 years if you return it. What is the true interest rate compounded monthly being charged?