Question

Chris and John are buying the same car, a 2014 Nissan Maxima. Chris is financially responsible, has a great credit score, a 3% interest rate, and $4,000 down payment. John has had financial struggles and is approved with a 12% interest rate if he pays $5000 down payment. How much more will John pay for the car if it costs $22,500? They will both finance for 5 years.
Consider the scenario above. Answer the questions. Show your work and explain your process. In your explanation be sure to explain why “it costs more to be poor”.

Answer 1

Total amount paid by Chris = 4000 + (22500 - 4000)(1 + 0.03)^5 = 4000 + 18500(1.03)^5 = 4000 + 21446.57 = $25446.57

Total amount paid by John = 5000 + (22500 - 5000)(1 + 0.12)^5 = 5000 + 17500(1.12)^5 = 5000 + 30840.98 = $35,840.98

John paid $10,394.41 more than Chris.