Kyle Parker of Fayetteville, Arkansas, has been shopping for a new car for several weeks. So far, he has negotiated a price of $27,000 on a model that carries a choice of a $2500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1000 down payment and a monthly payment of $564 for 48 months. Kyle has also arranged for a loan from his bank with a 7 percent APR. Use the Run the Numbers worksheet on page 231 to advise Kyle about whether he should use the dealer financing or take the rebate and use the financing from the bank.

Page 231 worksheet

Step Example Your Figures 1. Determine the dollar amount of the rebate. 2. add the rebate amount to the finance charge for the dealer financing (dollar cost of credit). 3. use the formula from chapter 7 (equation [7.2] on page 215 and used here as equation [8.1]) to calculate an adjusted aPR for the dealer financing.