Question

You (or your parents) are debating about whether to buy a new car for $19,072.00 or a used car for $15,635.00. Sales tax is 4.5%. You (or your parents) plan to make a down payment of $1,200.00 and your credit rating is fair. Use the table below to determine the difference in interest accrued by the end of the first month.

Secured Unsecured
Credit APR (%) APR (%)
Excellent 5.4 5.65
Good 5.95 6.35
Average 6.30 6.90
Fair 7.55 7.60
Poor 9.80 10.0

Answer 1

Answer: $20.95

Due to credit rating being fair:

Secured APR = 7.00%

Loan amount = sale price + tax - down payment

New car =
`19027 + (19072 x 0.045) - 1200 = 18730.24`

Used car =
`15635 + (15635 x 0.045) - 1200 = 15138.575`

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Monthly interest = loan amount
`x 0.07 x 1/12`

New car =
`18730.24 x 0.07 x 1/12 = 109.26`

Used car =
`15138.575 x 0.07 x 1/12 = 88.31`

Thus, the difference is
`109.26 - 88.31 = $20.95`