Question
In: Finance
If you wanted to finance a new car, would you apply to a finance company or...
If you wanted to finance a new car, would you apply to a finance company or a commercial bank? What are the advantages and disadvantages of either choice?
Solutions
Expert Solution
| Financing from a finance company, can be applied to many ones, but | |
| commercial bank car loan can only be applied to a single one. | |
| The main difference between both kind of finance is: | |
| FINANCE COMPANY | COMMERCIAL BANK |
| Lower interest rates | Choice between various rates schemes. |
| Commission of salesman makes interest rate up. | No salesman commission involved. |
| Finance terms typically for 3 years. | Choice of tenure 1-7 years |
| Down payment is essential | No case of down payment |
| Benefits: | |
| Less paper work | Good amount of formalities |
| Choice between various financers | Choice between various interest rates terms |
| Negotiation of price exists | Negotiation between loan terms exists. |
| Drawbacks: | |
| Eligibility of good credit | Car mortgage |
| Schemes available with costly cars | Schemes for all classes of cars. |
| Down payment essential | Higher interest rates to other finances. |
| DECISION: | |
| Of the finance co. and commercial bank, the loan from the commercial bank is more | |
| appropriate because of longer loan tenure which makes the EMI a small one, which | |
| is more acceptable by middle level income car seakers. Also, no down payment is | |
| essential so more appreciated than other finance companies. | |
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The sales and finance team of a car company is evaluating a new
proposed luxury model of its
brand that will require an investment of $1Billion in a new machine
for car interior decoration.
Demand for the company’s car is expected to begin at 100,000 units
in year 1, with 10% annual
growth thereafter. Production cost will be $35,000 per unit in the
first year, and increase by a rate
of either 3% or 5% per year as...
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decoration. Demand for the company’s car is expected to begin at
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