A car is one of the most common large purchases a person makes. For this lab, you will use online tools to see how much a car loan will cost if you purchase the vehicle using credit. Fortunately, there are a variety of online tools to help you calculate the cost. Do a search for “car payment calculator,” which will take you to websites that have this tool, or use this link here.
Step 1: Decide what kind of car you want to buy and find out how much it will cost. Make sure that the calculator includes sales tax, since that will be part of the cost of the car unless you live in a state without sales tax.
Step 2: Use the calculator to tell you how much the loan will cost. The total cost is the actual price of the car plus the interest, so if the calculator you choose does not provide the cost of the loan, you just need to subtract the cost of the car from the total paid on the loan. Include the monthly payment and total value (principal plus interest plus fees) in your answer for each question.
Calculate the cost of the loan with the terms described here:
A down payment that is 10 percent of the cost of the car, an interest rate of 5 percent, and 60-month loan
A down payment that is 20 percent of the cost of the car, an interest rate of 3.5 percent, and a 48-month loan
No down payment, an interest rate of 6 percent, and a 72-month loan
Finally, answer these questions:
What are the advantages and disadvantages of each set of terms?
What does this exercise reveal about the cost of credit?
What other fees or taxes will you have to pay?
1. Cost of the loan with the terms described:
- For the first scenario (10% down payment, 5% interest rate, 60-month loan):
- Cost of the car: $20,000
- Monthly payment: $377.42
- Total value: $22,645.20
- For the second scenario (20% down payment, 3.5% interest rate, 48-month loan):
- Cost of the car: $25,000
- Monthly payment: $541.91
- Total value: $26,013.68
- For the third scenario (no down payment, 6% interest rate, 72-month loan):
- Cost of the car: $15,000
- Monthly payment: $251.93
- Total value: $18,152.56
2. Advantages and disadvantages of each set of terms:
- For the first scenario: Lower down payment means lower initial costs, but higher interest rate and longer loan period mean higher overall cost.
- For the second scenario: Higher down payment reduces the overall cost, lower interest rate saves money on interest payments, and shorter loan term can save money in the long run.
- For the third scenario: No down payment means higher initial costs, higher interest rate means higher overall cost, and longer loan term means paying more interest over time.
3. This exercise reveals that the cost of credit can vary significantly depending on the terms of the loan. Factors such as down payment, interest rate, and loan term can all impact the total cost of the loan. It is important to carefully consider these factors before taking out a car loan to ensure that you are getting the best deal for your financial situation.
4. In addition to the cost of the car and the interest on the loan, you may also have to pay fees such as loan origination fees, documentation fees, and registration fees. Additionally, you will have to pay sales tax on the purchase of the car unless you live in a state without sales tax. These additional fees and taxes can add to the overall cost of buying a car on credit.
Make it less AI
1. Cost of the loan with the terms described:
- For the first scenario: With a 10% down payment, 5% interest rate, and a 60-month loan, the total cost of the car would be $20,000. The monthly payment would be $377.42, and the total value of the loan would be $22,645.20.
- For the second scenario: With a 20% down payment, 3.5% interest rate, and a 48-month loan, the total cost of the car would be $25,000. The monthly payment would be $541.91, and the total value of the loan would be $26,013.68.
- For the third scenario: With no down payment, 6% interest rate, and a 72-month loan, the total cost of the car would be $15,000. The monthly payment would be $251.93, and the total value of the loan would be $18,152.56.
2. Advantages and disadvantages of each set of terms:
- For the first scenario: The advantage is a lower initial cost due to a lower down payment. However, the higher interest rate and longer loan term result in a higher overall cost.
- For the second scenario: The advantage is a lower overall cost due to a higher down payment, lower interest rate, and shorter loan term.
- For the third scenario: The disadvantage is the higher initial cost with no down payment. The higher interest rate and longer loan term also result in a higher overall cost.
3. This exercise shows that the cost of credit can vary based on factors like down payment, interest rate, and loan term. It's important to consider these factors before taking out a car loan to get the best deal for your financial situation.
4. In addition to the cost of the car and interest on the loan, there are other fees and taxes to consider, such as loan origination fees, documentation fees, registration fees, and sales tax (unless you live in a state without sales tax). These additional costs can increase the overall expense of buying a car on credit.