Question

Bruce is considering purchasing a car for $10,000. He is thinking about using his savings to make a 20% down payment and then financing the difference over a 4-year loan. If he doesn’t make the down payment, he’ll qualify for an interest rate of 8.0%. If he makes the down payment, he’ll qualify for an interest rate of 7.0%. Use the amortization table provided to complete the statement. Round to the nearest cent, if necessary.

Answer 1

To finance the car, Bruce has two options: making a 20% down payment or not making a down payment. With a 20% down payment, the total cost of financing the car is $9,191.84. Without a down payment, the total cost of financing the car is $11,682.

To determine the cost of financing the car, we need to calculate the loan amount and the monthly payment for each interest rate option.

1. If Bruce makes a 20% down payment, the loan amount will be $10,000 - (20% x $10,000) = $8,000. The interest rate is 7.0%, and the loan term is 4 years. Using an amortization table, we can find that the monthly payment is approximately $191.33. Therefore, the total cost of financing the car is $191.33 x 48 months = $9,191.84.

2. If Bruce doesn't make a down payment, the loan amount will be the full price of the car, which is $10,000. The interest rate is 8.0%, and the loan term is 4 years. Using the amortization table, we can find that the monthly payment is approximately $243.25. Therefore, the total cost of financing the car is $243.25 x 48 months = $11,682.