You want to buy a car that has a price of 25000 You will tra

You want to buy a car that has a price of $25,000. You will trade in a vehicle that has payments of $277.84 per month. You have 3.0 years left at an APR of 6%. They will give you $6000 in trade in. If you trade in and finance the car for 6 years @ 7% APR, what will your payment be?

Solution

Price of new car = 25,000

PV of payments duw on the vehicle that you trade in = PV(0.06/12,3*12,277.84) = 9,132.88

Value that they will give you = 6,000

Value that you still have to pay = 9,132.88 -6,000 = 3,132.88

Total present value = Price of new car + PV of the trade loan = 25,000+3,132.88 = 28,132.88

New payment = PMT(rate,nper,pv) = PMT(0.07/12,6*12,28,132.88) = $479.64