Dean is planning to purchase a new NissanAltimawhich costs$26,865.He has saved up $3,200 to put toward it.He is thinking about getting a loan for it from his credit union, but he could also keep driving his beat-up old car for a while longer and save up cash for the new one.

Possibility One: A Loan

Dean qualifies for a 5-year loan from his credit union with a 6.4% APR.If he uses the $3,200 as a down payment, he will be making an 11.91% down payment and his car loan will be for the remaining $23,665.Using the PMT formula we find that his monthly payment will be $461.93.Considering all the monthly payments and the down payment, he pays a total of $30,915.80 for the car. Since the car cost $26,865, the extra $4050.80 that he paid was the interest.

Wow!That's a lot of money to pay in interest.Dean would like to get the car soon, but he wants to at least look into the option of saving up and paying cash for the car so he doesn't have to pay so much for interest.

Possibility Two: Saving Up

If Dean puts his $3,200 in his savings account, which has an APR of 1.2%, how much would he have to deposit every month to have the $26,865 saved up after five years?