Question

A car manufacturer is offering 36-month 2.9% APR financing or $1,500 cashback on a car. The car price is $30,000. You are borrowing the cash to buy the car from a bank at 9% APR. Which of the following statements is (are) correct?

a. The payment assuming bank financing is $906.29.

b.The payment assuming special (car manufacturer) financing is $879.22.

c.The present value of special financing at the bank interest rate is $27,393.78.

d.The car buyer should choose special financing, foregoing the cashback.

e.The car buyer should choose banking financing, receiving the cashback.

Answer 1

Answer:

APR: APR means Annual Percentage Rate , it is the rate of interest which every individual has to pay yearly on a borrowing loan or they receive on deposits. APR is used or apply on everything from mortgages and car loans to credit cards.

In simple words APR tells us that how much interest we will pay over the course of year, or say, monthly, if we are not paying the compounding loan (that is principal + Interest). It is also called as Effective Annual Rate.

In the given data, Car manufacturer is offering 2.9% APR and Bank borrowing APR is 9 % which is higher than car manufacturer

Hence, The statements which are correct:

b) The payment assuming special (Car manufacturer) financing is $ 879.22

d) The car buyer should choose special financing, foregoing the cashback.