You want to buy a new car that costs $48,000. Dealer A offers to lend you the entire $48,000 for a zero-interest 2-year loan with monthly payments that start the next month. Dealer B requires you to pay $10,000 now, followed by installments of $1,500 for the next 24 months. You observe that the market interest rate is 6%.
a. What is the net cost today of the two options? Which option offers you the cheapest financing?
b. Use a financial calculator or spreadsheet to help you calculate what the interest rate would be if the financing cost from Dealer A was equal to that of Dealer B.