Question

Suppose that you are thinking about buying a car and have narrowed down your choices to two options.

The new-car option: The new car costs $31,000 and can be financed with a three-year loan at 7.19%.
The used-car option: A three-year old model of the same car costs $16,000 and can be financed with a four-year
loan at 5.89%.
What is the difference in monthly payments between financing the new car and financing the used car? Use
PMT=
[-(19]
The difference in monthly payments between financing the new car and financing the used car is
(Round to the nearest cent as needed.)

Answer 1

To calculate the monthly payments for each option, we can use the PMT function in Excel or a financial calculator.

For the new car option:

Loan amount = $31,000

Interest rate (annual) = 7.19%

Loan term = 3 years

Number of payments = 3 x 12 = 36

Using the PMT function in Excel, we get:

PMT(7.19%/12, 36, -$31,000) = $966.59

For the used car option:

Loan amount = $16,000

Interest rate (annual) = 5.89%

Loan term = 4 years

Number of payments = 4 x 12 = 48

Using the PMT function in Excel, we get:

PMT(5.89%/12, 48, -$16,000) = $385.36

The difference in monthly payments between the two options is:

$966.59 - $385.36 = $581.23

Therefore, the difference in monthly payments between financing the new car and financing the used car is $581.23.

Explanation: