There are many financing is read. If might be negotiating on different variables
ID: 3116901 • Letter: T
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There are many financing is read. If might be negotiating on different variables. To do a thorough comparison, you hi are many financing options for new car buyers, and sometimes comparineaed onceth alrshps you decide to purchase a new car, be sure to get all the details an be cntusing. Newspaper and television ads often seem much more complica offers between dealer- remember that the dealerships must take all the variables into consideration. Assume you have decided to purchase a new a manuf $22,000 you have collected offers from both of them. You plan to use the trade-in value payment. The dealership offers and the assessed values for your car are liste car with a manufacturers suggested retail price (MSRP) of hips that carry this car and ,including all the options you have selected. There are two local dealers of your old car as a down Dealership Factory Dealer Trade-In Finance Term of Loan Annual Rate of Interest 11% 45% MSRP Incentive Value Amount City Motors $22,000 $1200 $2500 City Motors $22,000 $1000 City Motors $22,000 $1000 $250 $18,500 48 months $18, 300 48 months $2500 $18,500 36 months 7.9% Arrow Imports $22,000 900 Arrow Imports $22,000 $500 $3000 $18, 100 48 months $3000 $18, 500 24 months 1. Your monthly payment can be calculated using the formula where P represents your payment, A is the financed amount, i is the monthly interest rate in decimal form (i = annual rate/12), and n is the duration of the loan in months. Compute the monthly payment for each of the scenarios above. 2. What is the total cost of the car for each of the scenarios? (Total Cost Monthly Payment Term of Loan) 3. How much interest is paid in total for each of the scenarios? (Total Interest Total Cost Financed Amount) 4. Which of these scemarios is the best for you? What is best for you may not be what is best for everyone, so explain the reasons for your selection.Explanation / Answer
1. For first scenario,
A=18300, i=11/1200=0.009166666, n=48
P=18300[{1-(1+0.009166666)^(-48)}]^(-1)=18300[1-(1.009166666)^(-48)]^(-1)=$473
Therefore, Total cost = monthly payment * Term of loan = $473 * 48 = $22,704
For second scenario,
A=$18,500, i= 0.00375, n=36 months
P=18500[1-(1+0.00375)^(-36)]^(-1)= $550
Therefore, the total cost = $550*36=$19800
For 3rd scenario,
A=$18,500, i=0.0065833, n=48 months
P=18500[1-(1+0.0065833)^(-48)]^(-1)=$451
Total cost = $451*48=$21,648
For 4th senario,
A=$18,100, i=0.00825, n=48
P=18100[1-(1+0.00825)^(-48)]^(-1) = $458
Total cost = $458 * 48= $21984
For 5th scenario,
A=$18,500, 0.00325, n=24
P=18500[1-(1+0.00325)^(-24)](^-1) = $803
Total cost = $803*24 = $19,272
2. Interest paid in 1st scenario = total cost - financed amount = $22,704 - $18,300=$4,404
Interest paid in 2nd scenario = $19800 - $18,500 = $1,300
Interested paid in 3rd scenario = $21,648 - $18,500 = $3,148
Interest paid in 4th scenario = $21,984 - $18,100 = 3,884
Interest paid in 5th scenario = $19,272 - $18,500 = $772
3. Second scenario is the best as the interest paid on the financed amount for 36 months period is very less. The time duration and montly payment is also comfortable.
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