Use the information for the question(s)below.
You are in the process of purchasing a new automobile that will cost you $27,500.The dealership is offering you either a $2500 rebate (applied toward the purchase price)or 1.9% financing for 48 months (with payments made at the end of the month).You have been pre-approved for an auto loan through your local credit union at an interest rate of 6.5% for 48 months.
-If you take the $2500 rebate and finance your new car through your credit union your monthly payments will be closest to:
A)$520.
B)$573.
C)$593.
D)$799.

Question

Quizplus · Accepted Answer

First, let's calculate how much the car will cost with the rebate:

$27,500 - $2,500 = $25,000 (new purchase price)

Now, let's calculate the monthly payment if we finance through the credit union at 6.5% interest:

Using the loan payment formula: Payment = (P*r)/(1-(1+r)^-n)

P = loan amount = $25,000
r = monthly interest rate = 6.5%/12 = 0.0054
n = number of months = 48

Payment = ($25,000*0.0054)/(1-(1+0.0054)^-48)
Payment = $593.29

So, if we take the rebate and finance through our credit union, our monthly payment will be $593.29.

Now, let's calculate the monthly payment if we finance through the dealership at 1.9% interest:

Using the loan payment formula:

P = loan amount = $27,500
r = monthly interest rate = 1.9%/12 = 0.0016
n = number of months = 48

Payment = ($27,500*0.0016)/(1-(1+0.0016)^-48)
Payment = $596.97

So, if we take the dealership financing, our monthly payment will be $596.97.

Therefore, the best choice is to take the $2500 rebate and finance through the credit union, with a monthly payment of $593.29.

Use the Information for the Question(s)below