Say that you (or your parents) are purchasing a used car for $19,850. The sales tax is 7.5%, the down payment is $1,000.00, and you have an average credit rating. If your first payment is $425.98, how much of the payment goes toward the principal?

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We are NOT told  1) the finance charge and 2) the amount of time 19,850.00 Car Price +1,488.75 Sales Tax  -1,000.00 Down Payment 20,338.75 This is the amount being financed Using a loan calculator We see that if the loan is for 9.382% and it is for 5 years, Then the monthly payment is $425.98 We will make 60 (12 months * 5) monthly payments resulting in a total loan cost of 425.98 * 60 =   25,558.80 Total Loan Cost -20,338.75  Money Being Financed    5,220.05  Five Year's Interest ******************************************************************** THIS ISN'T EXACTLY RIGHT - SCROLL TO THE BOTTOM So, 5,220.05 / 60 = Interest Paid each month. = $87.00 So, 425.98  -87.00 338.98 Each month goes toward the principal. ****************************************************************************************** Although, the monthly payment remains exactly the same each month, the amount going toward interest and the amount going to equity (what you own), changes drastically each month. See the mortgage calculator So, your first payment, of 452.98 pays for $159.02 in interest and $266.95 in principal.

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