Final answer:
James is financing a car with a purchase price of $27,000 by making a down payment of $5,000 and 60 monthly payments of $525. The amount financed is $22,000, the total amount of payments is $31,500, and the finance charge is $9,500.
Step-by-step explanation:
Calculating the Costs of Financing a Car
When purchasing a car, one has the option to pay in cash or to finance the purchase. James chose to finance the car with a purchase price of $27,000. The down payment for the car is $5,000, and he will make 60 monthly payments of $525. The amount financed (the loan amount) is the purchase price minus the down payment, which in James's case is $27,000 - $5,000 = $22,000.
The total amount of monthly payments is found by multiplying the monthly payment amount by the number of payments: 60 payments × $525 per payment, giving us $31,500. To determine the finance charge, we subtract the amount financed from the total amount of payments: $31,500 (total payments) - $22,000 (amount financed) gives us a finance charge of $9,500. By financing the car, James will be making a significant payment over and above the initial cost of the car, which is common when taking out a loan. The interest that accrues on the loan amount constitutes the finance charge, which is the cost of borrowing the money.