Q: Karou is considering different options for financing the $12,000 balance on her planned new car purchase. The cheapest advertised rate among the local banks is 7% for 48 mo. car loan. The current rate on her revolving home equity line is 8.5%. Karou is in the 25% federal tax bracket and the 5.75% state tax bracket.

1. Calculate Karou's monthly car payment. Compare the payment amount if she uses the 48 mo. car loan through her local bank vs. her home equity line of credit. Assume both loans will be over 48 mo. and use simple interest.

Please look at the attached excel sheet.

The monthly payment for the car with the bank loan is $287.35

The monthly payment for the car loan with the home equity line is $295.78