Question

Seb pays the $5,000 cost for his car all at once. Carolina also buys a $5,000 car, but she uses a secured line of credit paid over a period of 3 years. What is the advantage of Carolina’s strategy? smaller payments no interest no collateral lower price

Answer 1

Carolina's strategy allows her to pay off a $5,000 car with smaller payments over time using a secured line of credit, which can make the purchase more manageable despite the added cost of interest. This strategy typically requires collateral, which could be the car itself.

Step-by-step explanation:

The advantage of Carolina’s strategy of using a secured line of credit to pay for a $5,000 car over a period of 3 years is that it allows for smaller payments over time, despite the interest that may be accrued. This approach can make a purchase more manageable for someone who might not have the available funds to pay for the car all at once, like Seb did. However, it's important to note that this convenience comes with the cost of interest, and potentially other fees, which means Carolina will end up paying more than the initial price of the car over the three years.

It is also worth considering that a secured line of credit requires collateral, which in this case would likely be the car itself. This means if Carolina fails to make her payments, the lender could take possession of the car. However, because the payments are more manageable, it may be less of a financial strain on a month-to-month basis than paying the full amount upfront.