2 Car loan 1 or 2 sheets A sheet with explanations of your t

2. Car loan (1 or 2 sheets). A sheet with explanations of your two car loan decisions. A sheet with supporting calculations (unless you include them in the body of your written explanation).

Solution

Part 1: Amount financed = 30,000-6000 = $24,000. Rate = 12% and Nper = 5. Using the “pmt” function in excel we get the annual payment = $6657.83. This includes both principal and interest

In case of 2^nd dealer amount financed = 30,000. Rate = 3.6% and Nper = 4. Pmt function gives an annual payment of $8186.93

The payment details can be viewed below:

As we can see that the total interest expenses is much lower in case of dealer 2 and so one should opt for buying the car from dealer 2. Even if no discount is offered one will end up saving much more than $6,000 of the discount by way of interest savings (9289.17 - 2747.73 = $6541.44)

Part 2: If payments are monthly then results are:

Dealer 2:

Here also (in case of monthly payments) the total interest expense for dealer 2 is much lower than in case of dealer 1. Interest expense for dealer 2 is $2256.72 for 4 years and for dealer 1 is $8032 for 5 years. The difference is (8032-2256.72) = 5775.28.

As savings in interest expenses of 5775.28<discount of $6000 being offered by dealer 1 for monthly payments you should buy from dealer 1.

Conclusion:

In case of annual payments buy from dealer 2.

In case of monthly payments buy from dealer 1.

		Dealer 1						Dealer 2
Year	Principal due at the start of the year	Annual Payment	Principal paid	Interest paid	Principal due at the end of the year			Year	Principal due at the start of the year	Annual Payment	Principal paid	Interest paid	Principal due at the end of the year
1	24,000.00	6,657.83	3,777.83	2,880.00	20,222.17			1	30,000.00	8,186.93	7,106.93	1,080.00	22,893.07
2	20,222.17	6,657.83	4,231.17	2,426.66	15,990.99			2	22,893.07	8,186.93	7,362.78	824.15	15,530.29
3	15,990.99	6,657.83	4,738.91	1,918.92	11,252.08			3	15,530.29	8,186.93	7,627.84	559.09	7,902.44
4	11,252.08	6,657.83	5,307.58	1,350.25	5,944.49			4	7,902.44	8,186.93	7,902.44	284.49	0.00
5	5,944.49	6,657.83	5,944.49	713.34	0.00
								Total				2,747.73
Total				9,289.17