Bruce should make a 20% down payment of $2,000 and finance the remaining $8,000 over 4 years at a 7.0% interest rate for the most cost-effective option.
To determine the most cost-effective option for Bruce, we need to compare the total costs of financing the car with and without a 20% down payment.
Option 1: No Down Payment
Loan Amount: $10,000
Interest Rate: 8.0%
Loan Term: 4 years
Using the amortization table, we find that the monthly payment is $239.24, and the total cost over the loan term is $11,501.76.
Option 2: 20% Down Payment
Down Payment: $2,000
Loan Amount: $8,000
Interest Rate: 7.0%
Loan Term: 4 years
With the down payment, the monthly payment is $194.66, and the total cost over the loan term is $9,355.84.
Comparing the two options, the option with the down payment results in a lower total cost, making it the more cost-effective choice for Bruce. By opting for the 20% down payment, Bruce not only reduces the principal amount but also secures a lower interest rate, leading to overall savings.
Complete question should be:
Should Bruce make a 20% down payment of $2,000 on a $10,000 car, financing the remaining $8,000 over 4 years at a 7.0% interest rate, or opt for no down payment, financing the full $10,000 at an 8.0% interest rate? Use the provided amortization table to determine the cost-effective option.