Question

Question 1.

You are offered a car with a price of $34,500 with a 0% financing for 48 months.

Please calculate

Installment per month

Total Finance Charge

Question 2

Your are offered the same car for a cash price of $32,500 by a competing dealership.

You can get a loan from your bank at 3% per year for four years.

Please calculate

Installment per month

Total Finance Charge

Question 3

The manufacturer offers a 36 month lease for the same car at $718 per month with an option to buy it for $11000 at end of the lease.

Please calculate

Installment per month

Total Finance Charge

Question 4.

Please explain which of the three options will you choose and why

Answer 1

Answers-

Q 1)

Price of car = $ 34500
Intereat rate= Financing charge  = 0 %
Duration for repayment = 48 months

Installment per month = $ 34500 / 48 = $ 718.75

Finance ( Interest ) charge = $ 0 as the inteeat rate = 0 %

Q 2)

Price of car = $ 32500

Interest rate = 3 % = 3 /12 = 0.25 %
Duration = 4 years
PV = $ 32500
FV = $ 0
I/Y = 0.25 %
N = 4 years = 48 months
PMT = ?

PMT = $ 719.36  / Month

Installment / month = $ 719.36

Total Finance ( Interest ) charge = Total amount paid - Price of car
Total amount paid = $ 719.36 x 48 = $ 34529.28

Total Finance ( Interest ) charge = $ 34529.28 - $ 32500 = $ 2029.28

Q 3)

Considering the car price = $ 32500
Total Lease amount = $ 718 / month x 36 = $ 25848

Final amount paid to buy after lease = $ 11000
Therefore

Total amount = Total lease amount + Final payment = $ 25848 + $ 11000 = $ 36848

Installment per month = $ 718
Finance ( Interest ) charge = $ 36848 - $ 32500 = $ 4348

Q 4)

The three options

Q 1) Total amount = $ 34500
Q 2) Total amount = $ 34529.28
Q 3) Total amount = $ 36848

The best Option is the first choice ie. paying amount of $ 34500 in 48 months at 0 % financing. As it is least among all the three choices.