Question

I really dont understand how to do this:
A car dealer offers you two deals on a car that costs $16,000. Please calculate the monthly payment, given these two payment options the car dealer is offering.

Payment Option 1: You can finance the car for 60 months with no interest if you make a $3,000 down payment.

Payment Option 2: You can finance the car for 72 months (6 years) with 1% simple annual interest and no down payment. (Hint: To calculate simple annual interest, use the formula Interest = Principal * Rate * Time (in years). Add the amount of interest to the price of the car.)

Which monthly payment amount is lower?

Answer 1

Payment Option 1:

$16,000 - $1,000 = $15,000 after down payment

$15,000 / 60months = $250/month

Payment Option 2:

$16,000 * 1.02 / 72months = $226.67/month

so 2nd one is better one.

Answer 2

Just solve for the monthly payment options.

Payment Option 1)
You can finance the car for 60 months with no interest if you make a $3,000 down payment. SO:
16,000 - 3,000 = 13,000
13,000 /60 = 216.666
Monthly payment: $216.67

Payment Option 2) You can finance the car for 72 months (6 years) with 1% simple annual interest and no down payment.
SO:
16,000 divided into 6 years = 2666.67
Multiply by 1% interest... 0.1 * 2666.67 = 26.67
2666.67 + 26.67 = 2693.34 per year.
Divide that by 12 months. 2693.34 /12 = 224.45
Monthly Payment: $224.45

Answer 3

Compare the monthly payments. Which is cheaper?

Answer 4

@bloodrain its $3,000 down payment not $1,000

Answer 5

dam, im sorry about tht error :/

Answer 6

Monthly payment 1. Thank you so much, Jazy(:

Answer 7

Payment Option 1:
$16,000 - $3,000 = $13,000 after down payment
$15,000 / 60months = about $216/month

Payment Option 2:
$16,000 * 1.02 / 72months = $226.67/month
so 2nd one is better one.

Answer 8

Welcome. (:

Answer 9

By the way, the 0.1 was meant to be a 0.01.

Answer 10

But the answer doesn't change, I just made a mistake writing it. (: