Youre given with an auto loan from your credit union. Suppose the total loan you have is
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Question:
You’re given with an auto loan from your credit union. Suppose the total loan you have is $35,000 and the current average market interest rate is 5% for the short-term loans. Answer the following questions.
- Given that the stated interest as 7% per year on your loan, what is the monthly payment if you’re intended to have the loan for 5 years?
- What is the effective annual rate if the loan is compounded monthly?
- Suppose the credit union says that if you’d like to retire the loan earlier, say at the end of the 2nd year, you need to pay (say) $26,000 for the rest of the loan, would you take it given that you have no difficulty to generate the cash flow? Why or why not?
- Suppose that the credit union also offers you another possible payment program that is they will give you a low 3% interest rate for the first two years and with a balloon payment at the end of the 2nd year as $30,000. (The balloon payment is a one-time payment that you have to pay it off or you have to re-finance by then.) What is your monthly payment for the first two years? Do you think this is a good deal? What are the incentives that you may take this program?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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