A furniture company is offering a choice of deals. You can receive $100 cash back on the purchase, or a 2% APR, 2-year loan. The price of the dining room set is $3,750 and you could obtain a 2-year loan from your credit union at 6% APR. What is the cost per month of each deal?

Question

Quizplus · Accepted Answer

To calculate the cost per month for the cash back offer, we need to subtract the $100 from the price of the dining room set, giving us $3,650. Then we divide that amount by 24 months, giving us a monthly cost of $152.08. However, we also need to add in the interest we would pay on the credit union loan. At 6% APR for a 2-year loan, we can use an online loan calculator to find that our monthly payment would be $163.50. 
For the 2% APR deal, we can use a loan calculator to find that our monthly payment would be $159.53. 
Therefore, the cash back option is the better deal as it saves us $4.97 per month compared to the 2% APR option, even when considering the interest on the credit union loan.

A Furniture Company Is Offering a Choice of Deals