Cash flow problems sets | Business & Finance homework help
The monthly payments for a $25,000 car loan with a 9 percent APR over 4 years would be approximately $602. This payment is calculated by taking the principal and interest amount of the loan and dividing it into equal payments spread out over the life of the loan.
If you paid interest only on the loan, your monthly payments would be significantly lower at around $208 per month. However, this decision also has significant consequences since you will not be paying down any of the principal balance during this time and will consequently find yourself in a worse financial position when compared to making regular payments towards both interest and principal. This could result in higher overall costs as more capital continues to accrue due to compounding interest over time resulting in larger debt balances down road . Furthermore , failure make regular repayments may lead lenders taking legal action against borrower thus further impacting their finances beyond immediate impacts already discussed.
In conclusion , while choosing pay off loans through interest-only route may appear attractive short-term due reduced repayment amounts – long-term implications such strategy can have should not be overlooked . Those looking buy cars should carefully consider options available before committing funds so they ensure best possible outcome achieved without putting too much stress on personal finances along way.