The truth in lending law requires that money / lending institutioins disclose the annual interest rate charged on loans.
The approx rate is given by the formula:

R equals (2+N)* F
--------------
P(n+1)

Where N is the number of payments per year, F = the finance charge in dollars, P is the principal, n = the number of scheduled installment payments.

$5,000 loan at 162.50 per month for 36 months

Finance charge = 36*162.5 - 5000 = 850


Need someone to tell me what each variable represents + solve this for me ^____^



At this point we know N = 12 P = 5000 ( I think ) and n = 36

This post was edited by Cold1992 on Sep 13 2016 12:58pm

are you saying R = (2+N)F/(P(n+1))?

if so it's

((2+12)*850) / (5000*(36+1)) =

(14*850) / (5000 * 37) =

11900 / 185000 =

.06

or 6%

You already answered your own questions in terms of what each variable represents

R = interest rate
P = 5000 = original loan amount you are borrowing
F = finance charge, which is the premium you are paying for borrowing
N = frequency of payments per year
n = total amount of installments (every month for 3 years)

This post was edited by leemyungbak on Sep 13 2016 07:07pm