You are looking to buy a Toyota car. You can afford a monthly payment of $500 for four years. The payment will occur at the end of each month. In addition to the loan, you make a $1,000 down payment now. If the interest rate on an auto loan is 6% APR compounded monthly, how much car can you afford?

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.