Kyle Parker of Fayetteville, Arkansas, has been shopping for a new car for sever

Question

Kyle Parker of Fayetteville, Arkansas, has been shopping for a new car for several weeks. So far, he has negotiated a price of $27,000 on a model that carries a choice of a $2500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1000 down payment and a monthly payment of $564 for 48 months. Kyle has also arranged for a loan from his bank with a 7 percent APR. Use the Run the Numbers worksheet on page 231 to advise Kyle about whether he should use the dealer financing or take the rebate and use the financing from the bank.

Explanation / Answer

Monthly interest in case of bank financing=7/12 0.583 Interest Factor in case of bank financing=(1+0.00583)^48 1.322 Monthly Instalment in case of bank financing =27000*(i*F)/(F-1)=27000*(0.00583*1.322)/(1.322-1) 646.26 Savings in instalment per month in case of dealer financing =646.26-564 82.26 Total Savings in instalments in 48months in case of dealer financing =82.26*48 3948.48 Net savings after accounting for 2500 rebate that he would have got in case of bank financing =3948.48-2500 1448.48 Thus , it is better to go for dealer financing as there is a net savings of 1448.48

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.