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What is your effective annual rate

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In an installment loan, lenders typically charge add-on interest on automobile. The term "add-on" means the interest is calculated and then added to the amount received to determine the loan's face value. For example, for a $10,000 add-on monthly installment loan with 12% nominal rate, you will pay a total interest charge of $1,200. However, since the loan is paid off in monthly installment, you have the use of the full $10,000 for only the first month; then the outstanding balance declines by $10,000/12=$833.33 per month. Therefore, your monthly installment payment will be $933.33 ($1,200/12+$833.33). What is your effective annual rate?

Reference no: EM131627951

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