MATH $1300$ Mathematical Reasoning

Financing My Future Car Activity

Part A Worksheet: Financing the Car

$1.$ Comparing lenders and loan terms

For a borrower with an excellent credit rating, buying a new car with a MSRP of $$21,500,$ the following loans could be available. We will consider how the lengths of the different loans have varying effects on the monthly and overall budgets for the consumer. PenFed Credit Union was used as the lender for this simulation. A person with a lower credit rating will have higher interest rates offered.

$2.$ Comparing monthly payments.

MSRP is the Manufacturer$$s Suggested Retail Price

APR is annual percentage rate $($Higher credit score allows for a lower APR$)$

Monthly payment is calculated using the installment loan formula from $4$D$.$ You don$$t have the calculate it yourself. The lending company provides the payment amount.

You need to fill in the last column, for Total Amount Paid, in the following chart. You would take the number of months in the Loan Term column, for example $36$ months, and multiply by the monthly payment to see what the total amount paid over the length of the loan would be$.$ For comparison, no down payment was used and no fees were considered. This chart is to help you see how much you will pay, for the same vehicle over $4$ different loan terms.

Fill in the last column to calculate the total amount paid with each of these loans.

Loan Term

MSRP

APR Monthly Payment Total Amount

Paid

$36$ months

$$21,500$

$5\mathrm{.}24\%$

$$647$

$48$ months

$$21,500$

$5\mathrm{.}49\%$

$$500$

$60$ months

$$21,500$

$5\mathrm{.}54\%$

$$411$

$72$ months

$$21,500$

$5\mathrm{.}84\%$

$$355$

Part B Directions: Evaluating Results

In this section, you will answer the following questions based on your results from Part A$.$ Use complete sentences to answer.

$1.$ How much money do you save monthly by choosing the $72-$month term instead of the $36-$month term?

$2.$ How much money would you save overall by choosing the $36-$month term instead of the $72-$month term?

$3.$ Which loan term would YOU choose if you were faced with these options? Would you prefer the larger monthly payment over a shorter loan term, or a smaller monthly payment but for a longer period of time? Why?