Practical Application $1$

Let's assume you purchased a new car and financed it through the dealer. The purchase price was $$30,000$ including all fees, taxes and delivery costs.

The dealer offered an 'all inclusive' financing plan at a $12\%$ rate. Your $30$ monthly payments were $$1,300,$ derived by adding interest of $$9,000$ to the $$30,000$ and dividing by $30$ monthly payments.

Your friends tell you that your interest rate is above $20\%$ and that you should have borrowed from your home equity line at a lower rate. Are they right?

Ans:

To evaluate whether the friends were correct about the interest rate on my car loan being above $20\%,$ I used the HP$-12$C financial calculator to determine the effective interest rate based on the loan details. UUssee ffiinnaanncciiaall ccaallccuullaattoorr