The most common method of buying a car in the United States is borrowing the money...
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The most common method of buying a car in the United States is borrowing the money and then paying it off in installments. Even amongst used cars, half are purchased this way. Suppose you are a used car seller, and you have a car that you think is worth $5,000 (because comparable used cars retail at that value). The buyer has $4,000 in cash and seeks financing over one year for the remaining $1,000. Because the borrower is at high risk of default (based on his financial background information), you are only willing to lend to the buyer at an annual interest rate of 30%, which the buyer is willing to accept. Unfortunately, state usury laws limit the maximal permissible interest rate you can charge to 15%. What contract do you offer to the buyer so you can still legally complete the transaction that you and the buyer wish to complete? Completely specify the contract, including all numerical magnitudes. The most common method of buying a car in the United States is borrowing the money and then paying it off in installments. Even amongst used cars, half are purchased this way. Suppose you are a used car seller, and you have a car that you think is worth $5,000 (because comparable used cars retail at that value). The buyer has $4,000 in cash and seeks financing over one year for the remaining $1,000. Because the borrower is at high risk of default (based on his financial background information), you are only willing to lend to the buyer at an annual interest rate of 30%, which the buyer is willing to accept. Unfortunately, state usury laws limit the maximal permissible interest rate you can charge to 15%. What contract do you offer to the buyer so you can still legally complete the transaction that you and the buyer wish to complete? Completely specify the contract, including all numerical magnitudes.
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As the seller you cannot offer an interest rate higher than the maximum permissible interest rate of ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date:
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