Logarithms and Car Payments

Students will be able to:

Utilize properties of logarithms

Solve exponential equations using logarithms

Materials: Pencil, paper, scientific calculator, and computers with internet access. Car
Loan Worksheet, fill in the data, show calculations, and answer the questions.

Content Material
Is there a new car you are interested in? Do you know its approximate price? Do you
know how much of a car payment you could afford each month? Based on the payment
you can afford, is this car within your reach? Print off the Car Loan Worksheet (in the
Content Materials folder) and fill it in using the steps below.
OPTIONAL: Go to www.chevrolet.com or www.honda.com and build your car. Then
use the price from this site.
1. Write down the price of the car you are interested in. (Note: We are assuming this
is the final price after tax and down payment or trade in.)
2. Write down the monthly payment you can afford.
3. Look up NEW CAR interest rates at
www.bankrate.com/brm/rate/brm_autosearch.asp
Choose auto loan (you may already be at the auto loan page)
Choose your state
Choose the city near where you live
You will have the choice between interest rates for 36, 48, 60, and 72 months.
4. Now you will calculate the number of months it would actually take you to pay
off your car loan based on the price of the car, the monthly payment you can
afford, and the interest rate you have selected.
1 (1 i ) n
i

Use the following formula: PV PMT

PV = present value of the loan or the amount of the loan (cost of car)
PMT = monthly payment
n = number of payments (this is what you are finding)
i

int erest rate as a decimal

number of times compounded per year

(Since you will be making monthly payments, the number of times compounded
per year =12.)

5. How many months would it take you to pay off your loan? Is the number of
months within the restrictions of the interest rate (if you chose a 60 month rate
can you actually pay off the car in 60 months?).
6. If it would take you longer than the interest rate would allow, calculate how many
months it would take you to pay off your loan if you went to the next interest rate
(60 months to 72 months).
If you could pay off the loan within the number of months specified by the rate,
see if you could pay off your loan if you went down to the next interest rate (60
months to 48 months).
7. Check your calculations. You will be able to check your calculations by using a
calculator at http://www.bankrate.com/brm/rate/brm_autosearch.asp. To get to the
calculator, repeat the process in step 3 on the Content Materials page. The page
with the interest rates has a calculator on the right side of the screen (you are
looking for the calculator similar to what you see below). Enter the loan amount,
the number of months it should take you to pay off your loan according to your
calculation (from step 4), and the interest rate you used. Click on Calculate and
see if the monthly payment is what you estimated you could afford (from step 2).
Now check your calculation from step 6 by repeating this process.
Calculate your payment

Loan amount:
Loan term:
Interest rate:

$
months
%

Calculate

8. By the time your loan is finally paid off, how much money total in interest will
you have paid over the course of the loan? Show your work

SEE EXAMPLE BELOW:

1. PRICE of car: $13,000
2. Estimated MONTHLY PAYMENT you can afford: $250
3. NEW CAR interest rate: 3.45% (for a 48 month loan)
1 (1 i ) n

4. Use the following formula: PV PMT

PV = present value of the loan or the amount of the loan (cost of car) = $13,000
PMT = $250
n = number of payments (this is what you are finding)
i

int erest rate as a decimal

number of times compounded per year

.0345
0.002875
12

1 (1 0.002875) n

13,000 250
0.002875

n 56.41

5. How many months would it take you to pay off your loan? Is the number of
months within the restrictions of the interest rate (if you chose a 48 month rate
can you actually pay off the car in 48 months?).
It would take me approximately 56.41 months to pay off my loan. Since it would
take me approximately 56.41 months to pay off my loan of $13,000 with monthly
payments of $250 and an interest rate of 3.75%, I will not be able to pay off the
loan within the required 48 months.
6. If it would take you longer than the interest rate would allow calculate how many
months it would take you to pay off your loan if you went to the next interest rate
(in this case 48 months to 60 months).
Since I could not pay off my loan in 48 months, I must go back to
www.bankrate.com to find out what the rate is for a 60 month new car loan. If
the interest rate is the same, then it will take me 56.41 months to pay off my loan.
However, if the interest rate is different, I must calculate how many months it will
take me to pay off my loan at the new interest rate.

Upon checking the interest rate for a 60 month new car loan at
www.bankrate.com, I find that the rate is now 5.5%. Using the formula from
above, I now calculate that it will take me approximately 59.54 months to pay off
my loan of $13,000 with monthly payments of $250 and an interest rate of 5.5%.
Therefore, I will be able to pay off the loan within the required 60 months.
(NOTE: It will take me 3 months longer to pay off the loan at this interest rate.)
If you could pay off the loan within the number of months specified by the rate,
see if you could pay off your loan if you went down to the next interest rate (60
months to 48 months).
7. Check your calculations. You will be able to check your calculations by using a
calculator at http://www.bankrate.com/brm/rate/brm_autosearch.asp. To get to the
calculator, repeat the process in step 3 on the Content Materials page. The page
with the interest rates has a calculator on the right side of the screen (you are
looking for the calculator similar to what you see below). Enter the loan amount,
the number of months it should take you to pay off your loan according to your
calculation (from step 4), and the interest rate you used. Click on Calculate and
see if the monthly payment is what you estimated you could afford (from step 2).
Now check your calculation from step 6 by repeating this process.
Calculate your payment

Loan amount:
Loan term:
Interest rate:

$
months
%

Calculate

Assessment
You MUST show your work to receive credit and you should have used logarithms to
solve the exponential equation. (You may not write that you just solved by graphing on
your calculator, although you may check your work that way.) Point values are listed in
red (a total of 15 points).
Car Loan Worksheet
Name_________________________________________
1. PRICE of car: _____________
2. Estimated MONTHLY PAYMENT you can afford: ____________
3. NEW CAR interest rate: __________ Number of months specified for this
rate:_______
1 (1 i ) n

4. Use the following formula to find n: PV PMT

PV = ___________
PMT = ___________
i=___________ (2 points)

SHOW WORK BELOW or attach a sheet of paper with your work.

n = ___________ (5 points)
5. How many months would it take you to pay off your loan? Is the number of
months within the restrictions of the interest rate (if you chose a 48 month rate
can you actually pay off the car in 48 months?).
(1 point)

6. If it would take you longer than the interest rate would allow, calculate how many
months it would take you to pay off your loan if you went to the next interest rate
(in this case 48 months to 60 months).
If you could pay off the loan within the number of months specified by the rate,
see if you could pay off your loan if you went down to the next interest rate (60
months to 48 months).
(5 points)

7. Check your calculations. You will be able to check your calculations by using a
calculator at http://www.bankrate.com/brm/rate/brm_autosearch.asp. To get to the
calculator, repeat the process in step 3 on the Content Materials page. The page
with the interest rates has a calculator on the right side of the screen (you are
looking for the calculator similar to what you see below). Enter the loan amount,
the number of months it should take you to pay off your loan according to your
calculation (from step 4), and the interest rate you used. Click on Calculate and
see if the monthly payment is what you estimated you could afford (from step 2).
Now check your calculation from step 6 by repeating this process.
(2 points)
Calculate your payment

Loan amount:
Loan term:
Interest rate:

$
months
%

Calculate

Supplementary Resources

Bankrate.com - an online resource for car loan interest rates

Ask Dr. Math
Present Value Formula
www.chevrolet.com
www.honda.com