The Johnsons Credit Questions

They are considering trading their car in for a newer used vehicle so that Harry can have dependable transportation for commuting to work. The couple still owes $5,130 to the credit union for their current car, or $285 per month for the remaining 18 months of the 48-month loan. The trade-in value of this car plus $1,000 that Harry earned from a freelance interior design job should allow the couple to pay off the auto loan and leave $1,250 for a down payment on the newer car. The Johnsons have agreed on a sales price for the newer car of $21,000.

• (a) Make recommendations to Harry and Belinda regarding where to seek financing and what APR to expect.
• (b) Using the Garman/Forgue companion website or the information in Table 7-2, calculate the monthly payment for a loan period of three, four, five, and six years at 6 percent APR. Describe the relationship between the loan period and the payment amount.
• (c) Harry and Belinda have a cash-flow deficit projected for several months this year (see Table 3-6 and Table 3-7). Suggest how, when, and where they might finance the shortages by borrowing.