Maraki borrowed $5,100 from a car dealership to purchase her new car. In addition to repaying the principal of her loan, the dealer told her she would need to pay $765 in interest, and $135 of loan fees for a total repayment of $6,000. What is the cost of financing the loan?

Question

Maraki borrowed $5,100 from a car dealership to purchase her new car.  In addition to repaying the principal of her loan, the dealer told her she would need to pay $765 in interest, and $135 of loan fees for a total repayment of $6,000.  What is the cost of financing the loan?

BlackTom AI · Accepted Answer

In analyzing the loan details, I’ll break down the components one by one to see what costs are associated with financing the car.
First, identify the principal amount borrowed: $5,100. This is the amount that was lent to Maraki and will be repaid over time.
Next, determine the additional costs tied to the loan beyond the principal. The dealer states two extra charges: $765 in interest and $135 in loan fees. These are the costs incurred to obtain and service the loan, separate from repaying the principal.
To find the cost of financing, add the interest and the loan fees together: $765 (interest) + $135 (fees) = $900.
Therefore, the total cost of financing the loan, i.e., the extra amount paid over the principal for the financing, is $900.
Note that the principal repayment is not itself the financing cost; it is simply the amount borrowed that must be repaid, while financing cost refers to the additional charges incurred for borrowing.
If there were multiple-choice options, the correct choice would reflect this total financing cost of $900, since that is the sum of interest and fees.

FIN 205 B Module 6 quiz: credit and lending

Maraki borrowed $5,100 from a car dealership to purchase her new car. In addition to repaying the principal of her loan, the dealer told her she would need to pay $765 in interest, and $135 of loan fees for a total repayment of $6,000. What is the cost of financing the loan?

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