A car company is offering a choice of deals. You can receive $600 cash back on the purchase, or a 2% APR, 4-year loan. The price of the car is $18,900 and you could obtain a 4-year loan from your credit union at 6% APR. What is the monthly payment of each deal?

Question

Quizplus · Accepted Answer

To determine which deal is the best, we need to compare the total cost of each option. 
Cash back deal: 
Total cost = car price - cash back + interest on loan 
Total cost = $18,900 - $600 + (4 years x 12 months/year x $429.78/month) 
Total cost = $18,900 - $600 + $20,720.64 
Total cost = $39,020.64

2% APR deal: 
Total cost = car price + interest on loan 
Total cost = $18,900 + (4 years x 12 months/year x $410.04/month) 
Total cost = $18,900 + $19,681.28 
Total cost = $38,581.28

Therefore, the cash back deal has a lower total cost and is the better choice.

A Car Company Is Offering a Choice of Deals