Question

Kyle Parker of Concord, New Hampshire, has been shopping for a new car for several weeks. He has negotiated a price of $38,000 on a model that carries a choice of a $2,500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1,000 down payment and a monthly payment of $649 for 60 months. Kyle has also arranged for a loan from his bank with a 4 percent APR. Use the Run the Numbers worksheet to advise Kyle about whether he should use the dealer financing or take the rebate and use the financing from the bank. Round your answer to two decimal places.
Adjusted APR (dealer financing):______ %

Kyle should use . (the dealer financing or the financing from the bank)

Answer 1

Answer:

Kyle Parker of Concord, New Hampshire, has been shopping for a new car for several weeks and gone for the dealer loan  

Adjusted APR (dealer financing) = 12 [(95 x 60) + 9] (2500 + 649) / 12 x 60 (60 + 1) [(4 x 37000) + (2500 + 649)]  

Adjusted APR (dealer financing) = 3.25%

Where:

Y = 12

F = 2500 rebate + 649 monthly payment

D = 38000 -1000=37000

P = 60

Since APR (dealer financing) < APR (bank loan), dealer financing is a better option.