Question

Suppose you decide to purchase a used vehicle for $8,000. You are offered three loan options to finance the vehicle:  

Loan A involves financing the $8,000 at 3.95% for 36 months, with payments of $236.01 per month.

Loan B involves financing the $8,000 at 4.5% for 48 months, with payments of $182.43 per month.

Loan C involves financing the $8,000 at 5% for 60 months, with payments of $150.97 per month.

Discussion Questions:

In paragraph form and complete sentences, answer the following questions:

• Consider that the advantages and disadvantages of each loan. Which loan would you choose and why?
• After the loan is completely paid off, how much in total would you have paid for the vehicle?   

Answer 1

	Option A	Option B	Option C
rate	3.95%	4.50%	5%
term(in months	36	48	60
Amount of loan	8000	8000	8000
EMI	236.01	182.43	150.97
total amount paid
emi*no. of months	8496.36	8756.64	9058.2
interest paid
total amount paid - principle	496.36	756.64	1058.2

if we choose option A interest rate is 3.95 % which is the least in all the options and term of the repayment is 36 months which is also lowest in all the three options which means higher monthly payments needs to be made.

if we choose option B which has interest rate 4.5% which is higher then option A and Lower then option C then we can say that option B is more expensive then option A in terms of interest cost and less expensive the option C in terms of intrest cost . Term of payment is 48 months avialble in option B hence it has more time then option A and less time then option c hence monthly payment needs to be made are less then option c and more then option A.

Option C has hihgerst Interest Cost and Time to reapy hence higest interest cost and lowest per month payment is required to be made.

If amount of monthly payment is not a constraint then option A shall be choosen as it has lowest interest cost involved .