Question

You are purchasing a 2015 Chrysler 200 for $19,400, with 20% down. The balance will be financed at 7.6% over seven years with monthly payments. Monthy Payment= $238.82

Total Interest Charges= $ 4,540.60

Find:

How much interest is saved if you increase monthly payments by $50?

Five years later you sell for $5,000, and you must pay off the remaining loan balance when sold. What is your net cash position after selling?

Note: average auto depreciation is almost 50% in three years; Chrysler has poorest resale of all domestic manufacturers.

Please complete assingment in Excel.

Answer 1

a.

Price of Car = $19,400

Value of loan = $19,400 × (1 - 20%)

= $15,520

Value of loan for purchase of Car is $15,520

Monthly Payment on Car loan is calulated in excel and screen shot provided below:

Monthly Payment on Car loan is $238.82.

Total Interest payment in 7 year = ($238.82 × 12 × 7) - $15,520

= $20,060.61 - $15,520

= $4,540.61.

Total Interest payment in 7 year is $4,540.61.

Now, he decide to $50 extra monthly payment.

So, total Monthly Payment = $238.82 + $50

= $288.80.

if monthly payment is $288.80, then number of month it take to repay whole amount is calculated in excel and screen shot proivided below:

It take 66 month to repay whole amount.

So total interest payment in 66 month = ($288.82 × 66) - $15,520

= $19,031.50 - $15,520

= $3,511.50.

So total Interest saving = $4,540.61 - $3,511.50

= $1,029.10.

Total Interest saving is $1,029.10.

b.

Outstanding balance of loan at end of year 5 is present value of payment for next 2 year (upto 7 year). So outstanding balance at end of year 5 is calculated in excel and screen shot provided below:

Outstanding balance at end of year 5 will be $5,301.73. if sale price of Car at end of year 5 will be $5,000 then $301.73 you have to pay from your own pocket.