EXAMPLE 5 Buying a Car

You decide to buy a new Wheelmobile car. After a down payment, you need to finance (borrow) an additional $12,000. After you compare interest rates offered by the car dealership, local banks, and your credit union, the lowest monthly payment you can find is for an 84-month loan at 5.9% from the credit union, compounded monthly. What is your monthly payment?

We have , monthly interest rate , and . Using the amortization payment formula, we have

How much interest do you pay? You make payments totaling , so the interest is .

If you had bought a Plushmobile instead, with $24,000 to finance, you would have borrowed twice as much, and your monthly payment would have been twice as much.