Kaylee obtains a loan with simple interest to buy a car that costs $8,500. If Kaylee pays $1,020 in interest during the four year term of the loan, what was the rate of simple interest

The simple interest formula is:

A = P · (1 + r · t)

where:

A = total amount

P = principal

r = rate

t = time

Let's solve for r:

A = P + P · r · t

P · r · t = A - P

r = (A - P) / (P · t)

The quantity A - P is defined as the Interest, therefore:

r = I / (P · t)

= 1020 / (8500 · 4)

= 0.03

Therefore the rate was 3%.