Overhaulin'

Question about loan interest?

My grandpa has offered to give me a car loan to pay for a new vehicle instead of having it financed through a dealer. He is going to charge me 5% interest a month. I am going to pay around $750 a month for the car payment since I want to get it paid off as quickly as possible. I'm a bit confused though. Is it 5% of the principle a month? If it's 5% interest that's nearly $1500 a month just in interest! So I'd have to pay nearly $2000 a month to pay down the interest and get rid of the principle. Is that right or am I calculating this the wrong way?

Public Comments

1. He means 5% per annum with payments made on a monthly basis. This is a very sweet deal. From the tone of your message, he knows you will pay him back dependably. It is a very good deal for you and a decent one for him because he will be getting a little better than if his money were in a CD.