Question

You apply for a debt consolidation loan for $43,000 for 4 years. If your credit score is 760 or greater, then the annual percentage rate is 6%. If your score is less than 760, then the rate is 7%. How much, in dollars, can you save per month by having a credit score of 760 or greater? Round your answer to the nearest cent

Answer 1

Let's first calculate the monthly payment for the loan with a 6% APR:

n = 4 years x 12 months/year = 48 months
r = 6%/12 = 0.005 per month
P = $43,000

Monthly payment = P * r * (1 + r)^n / ((1 + r)^n - 1)
Monthly payment = $43,000 * 0.005 * (1 + 0.005)^48 / ((1 + 0.005)^48 - 1)
Monthly payment = $1,012.46

Now, let's calculate the monthly payment for the loan with a 7% APR:

n = 4 years x 12 months/year = 48 months
r = 7%/12 = 0.00583 per month
P = $43,000

Monthly payment = P * r * (1 + r)^n / ((1 + r)^n - 1)
Monthly payment = $43,000 * 0.00583 * (1 + 0.00583)^48 / ((1 + 0.00583)^48 - 1)
Monthly payment = $1,052.10

The difference in monthly payments is $1,052.10 - $1,012.46 = $39.64.

Therefore, by having a credit score of 760 or greater, you can save $39.64 per month