EXAMPLE 12 Add-on Loan

Suppose that you need to borrow $8000 to buy a used car. The dealer offers you a 5% add-on loan to be repaid in monthly installments over 4 years. This sounds like a much better deal than the 8% conventional loan that you can get at the credit union. How much is your payment on the dealer’s add-on loan?

The total amount to be paid over the 4 years (48 months) is

for a monthly payment of an even $200.00.