You want to purchase an automobile for $21,600. The dealer offers you 0% financing for 48 months or a $3,000 rebate. You can obtain 4.8% financing for 48 months at the local bank. Which option should you choose and why? (you would use the banks option to pay the rest after rebate)
To determine which option is more beneficial, let's calculate the total cost of each option:
Option 1: 0% Financing with $3,000 Rebate
To calculate the total cost with 0% financing, we would subtract the rebate from the initial cost of the automobile:
Total cost = $21,600 - $3,000 = $18,600
Option 2: 4.8% Financing at the Local Bank
To calculate the total cost with 4.8% financing, we need to calculate the monthly payments and multiply it by the number of months:
Using a car loan calculator or an Excel spreadsheet, we can input the following information:
Principal (Loan amount) = $21,600
Interest rate = 4.8%
Loan term = 48 months
This will give us the monthly payment amount. Let's assume that it is $500 per month.
Now, we need to calculate the total cost by multiplying the monthly payment by the number of months:
Total cost = $500 x 48 = $24,000
Comparing the two options:
Option 1 (0% financing with $3,000 rebate): $18,600
Option 2 (4.8% financing at local bank): $24,000
In this scenario, the better option would be to choose the 0% financing with the $3,000 rebate. This option would result in a lower total cost of $18,600, compared to the $24,000 total cost with the 4.8% financing.