Question

MONTHLY PAYMENT COMPARISIONS, 4 YEAR LOAN AMOUNTS

RATES $7000. $9000. $11,000. $13000.
7.5%. 169.23. 217.61. 265.97. 341.32
7.75%. 170.07. 218.66. 267.26. 315.85
8.00%. 170.89. 219.72. 268.54. 317.37
8.25%. 171.71. 220.77. 269.83. 318.90

A family intends to purchase a new car for $11,000. They will make a down payment of $2,000 and will pay off the loan over a 4 year period. According to the table, how much money will the save over the 4 year loan if they are able to finance the car at 7.5% instead of 7.75%?

A. $25
B. $50
C. $62
D. $75
E. $100

Answer 1

The family will save approximately $62 over the course of a 4-year loan by securing a 7.5% interest rate instead of a 7.75% rate, making option C ($62) the correct answer.

Step-by-step explanation:

A family is considering buying a new car with a loan amount of $11,000, having made a down payment of $2,000, which would leave them with a loan amount of $9,000. They plan to pay off this loan over a 4-year period. According to the given table, the monthly payment at a 7.5% interest rate would be $265.97. At a 7.75% interest rate, the monthly payment would increase to $267.26.

Now, to calculate how much they would save over the entire course of the loan if they obtained the lower 7.5% interest rate instead of the 7.75% rate:

Savings per month = $267.26 - $265.97 = $1.29

Total savings over 4 years (48 months) = $1.29 × 48 = $61.92

Therefore, the family would save approximately $62 over the term of the loan by securing the 7.5% rate as opposed to the 7.75% rate.