Notes for April 21, 22: Buying and financing a new car

Page 36:   Christina is trying to buy a car for $23,599.

Finance Option 1 (#1-2 on page 36) is a 3 year loan at 5.99% with 10% down payment.

Down payment is 10%. 10% = 0.10.  0.10*23599 = $2359.90

Loan amount = 23599 - 2359.9 = $21239.10
                            OR, 0.9*23599 = $21239.10.  Either way is the same answer.
                            The LOAN AMOUNT goes in the Finance App as "PV"

N = 3*12
I% = 5.99
PV = 21239.10
PMT = X
FV = 0
P/Y = 12
C/Y = 12
END

Using the Finance App, her payment would be $646.04

Question 2:  Depreciation. After 3 years, the car is worth only $14,250.

Total cost of car:  N*PMT + Down Payment - Value of car at payoff (when loan is paid)

3*12*646.04 + 2359.9 = $25,617.34

At the end of the 3 years, the car is worth (can be sold for) $14,250.

$25617.34 - $14250 = $11,367.34

 Finance Option 2 (#3 on page 36) is a 0% down and 0% APR for two years.

N = 2*12
I% = 0
PV = 23599
PMT = X
FV = 0
P/Y = 12
C/Y = 12
END

Under these conditions, her monthly payment would be $983.29.

Total Cost = 2*12*983.29 + 0 - value of car at 2 years

                 = $23,598.96 - $17,629  (given in the packet) = $5969.96.

Christina should take option 2, IF SHE CAN AFFORD IT, because the total cost is about 1/2 of option 1. But, it is a very high monthly payment, which many people can't afford.

Finance Option 3 (#4-5 on pages 36-37) is a LEASE at $349 per month with a BALLOON PAYMENT of $1200 at the end of 3 years.

In a lease, you DO NOT own the car at the end! It's basically a long-term rental.

Total Cost = 3*12*349 + 1200 = $13,764

Question 5: Is she being charged interest?

N = 3*12
I% = X
PV = 23599
PMT = -349
FV = -14250  (value of the car after 3 years, which is given in #2 on page 36)
P/Y = 12
C/Y = 12
END

From the Finance App, I% = 5.586%  (not even including the balloon payment at the end).

Should she take it? Maybe, if that's the only way she can afford to have a car. But there's no long-term payoff - you don't own the car at the end, so the total cost is the highest.

Option 4: (#6 on page 37)  Lease to purchase (a LEASE, but with the option to buy at the end). APR = 1.9%, 3 years. At the end, she can pay the depreciated value, or walk away for a fee of $150.

N = 3*12I% = 1.9
PV = 23599
PMT = X
FV = -14250
P/Y = 12
C/Y = 12
END

Payment = $289.93 each month.

Total Cost = 3*12*289.93 = $10,437.48

Now, either she walks away: $10437.48 + 150 = $10,587.48 total cost (and no car!), OR

She pays for the depreciated value: 
10,437.48 + 14250 (she pays) - 14250 (because she keeps the car) = $10,437 total cost.

New Homework:

You were already responsible for pages 40, 41, and 42. Now, you also need to complete pages 43 and 44. Turn in all 5 pages next time.