What is the effective interest rate and the apr

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Some lenders charge an up-front fee on a loan, which is subtracted from what the borrower receives. This is typically described as "points" (where one point equals 1% of the loan amount). The federal government requires that this be accounted for in the APR that discloses the loan's cost.

(a) A 5-year auto loan for $18,000 has monthly payments at a 9% nominal annual rate. If the borrower must pay a loan origination fee of 2 points, what is the true effective cost of the loan? What would the APR be?

(b) If the car is sold after 2 years and the loan is paid off, what is the effective interest rate and the APR?

Reference no: EM131806842

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