Imagine You Need A New Car But Not Just Any

Question

Imagine That You Have Decided You Need A New Car But Not Any Car Will Imagine that you have decided you need a new car, but not any car will do; you have decided to purchase the car of your dreams. Conduct some research as to the cost of this car. You have determined in this imagined scenario that you could afford to make a 10% down payment. You can borrow the balance either from your local bank using a four-year loan or from the dealership’s finance company. If you purchase from your dealership’s finance company, the APR will be 10% with your 10% down and monthly payments over three years. However, the dealership will give you a rebate of 5% of the car price after the three year term is complete. You want the best deal possible, so you consider the following questions: What type of car have you selected, and what will it cost? What is the interest rate from your local bank for a car loan for four years? What will your payment be to your local bank, assuming your 10% down payment? Be sure to use the formula provided in Chapter 4 and show your work. How much will that car have cost in four years? What will your payment be to the dealership finance company assuming your 10% down payment? Be sure to use the formula provided in Chapter 4 and show your work. How much will that car have cost in 3 years? Which is the better deal and why?

Dr. Jack HW Helper · Accepted Answer

In the pursuit of purchasing a new car, individuals often face various financing options, each with its own advantages and disadvantages. In this analysis, I will explore a scenario where I want to purchase the car of my dreams, considering two financing options: a traditional bank loan and dealership financing, with a focus on determining the total cost over time and identifying the most financially advantageous choice. Selection and Cost of the Car For this analysis, I have selected a luxury sedan priced at $40,000, a common choice among consumers seeking a blend of comfort, performance, and status. The total car price is $40,000, which sets the basis for calculations related to down payment, loan payments, and total costs. The 10% down payment on this vehicle amounts to $4,000, leaving a loan balance of $36,000. Interest Rate from the Local Bank and Loan Details The interest rate offered by the local bank for a four-year car loan is assumed to be 6%, based on current market conditions for good credit scores (Johnson & Lee, 2020). Using this interest rate, I will compute the monthly payment for a four-year loan using the standard loan amortization formula: $$ P = \frac{rPV}{1 - (1 + r)^{-n}} $$ where: - $ P $ is the monthly payment, - $ r $ is the monthly interest rate (annual rate divided by 12), - $ PV $ is the present value or loan amount, - $ n $ is the total number of payments (months). With an annual interest rate of 6%, the monthly interest rate is $ 0.06/12 = 0.005 $ (or 0.5%). The total number of payments over four years is $ 4 \times 12 = 48 $ months. Plugging the values into the formula: $$ P = \frac{0.005 \times 36,000}{1 - (1 + 0.005)^{-48}} \approx \frac{180}{1 - (1.005)^{-48}} $$ Calculating further, $ (1.005)^{-48} \approx 0.796 $, and thus: $$ P \approx \frac{180}{1 - 0.796} = \frac{180}{0.204} \approx \$882.35 $$ This represents the monthly payment to the bank. Total Cost with Bank Loan The total paid over four years is the mont

Imagine You Need A New Car But Not Just Any

Imagine That You Have Decided You Need A New Car But Not Any Car Will

Paper For Above instruction

Selection and Cost of the Car

Interest Rate from the Local Bank and Loan Details

Total Cost with Bank Loan

Dealership Financing and Rebate Impact

Rebate and Final Cost Calculation

Comparison and Conclusion

References