Rob wants to purchase a $5,000 drum set. The music store offers him a 2-year installment agreement requiring $800 down and monthly payments of $202.50. Rob has a poor credit rating.
a. What is his interest on this installment agreement?
b. Instead of using the store’s installment plan, Rob can borrow $5,000 at an APR of 7% from a local consumer finance company. What would be the monthly payment for this loan using the table from Example 1? Round to the nearest cent.
c. How much interest would the finance company charge?
d. Should Rob use the installment plan or borrow the money from the finance company?