Question: Your company has an existing loan with monthly payments, principal and interest, of $1,888.59. There are 120 payments left on the loan and the loan has an unpaid balance of $155,660.00. Your company is looking at the possibility of replacing this loan with a loan that has estimated closing costs of $3,300.00. At what interest rate would this become attractive?
Problem: The bank charges $500 for closing costs on a $17,000 loan with an annual percentage rate of 11% compounded monthly with a term of five years. The bank will not allow the closing costs to be added to the $17,000 borrowed. What effect do the closing costs have on the effective annual interest rate(AIR)?