Question

Say that you (or your parents) are purchasing a new car for $22,358. The sales tax is 6.45%, the down payment is 10% of the total cost, and you have a poor credit score. What is the lowest amount of interest you could pay at the end of the first month? Secured Unsecured Credit APR (%) APR (%) Excellent 4.75 5.50 Good 5.00 5.90 Average 5.85 6.75 Fair 6.40 7.25 Poor 7.50 8.40 $133.88 $180.22 $124.78 $141.93

Answer 1

9514 1404 393

Answer:

(a) $133.88

Explanation:

The addition of tax multiplies the purchase price by 1+6.45% = 1.0645. The payment of the down payment means the loan amount will be only 1-10% = 0.90 times the amount with tax. So, the loan amount is ...

$22,359(1.0645)(0.90) = $21,420.08

The loan is a secured loan (secured by the vehicle). So, the interest charged is that for a poor credit rating: 7.5%.

One month's interest is ...

I = Prt . . . . . interest on principal P at rate r for t years (1 mo = 1/12 yr)

I = $21,420.08(0.075)(1/12) = $133.88