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 $4,680 to the credit union for their current car, or $260 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 $1,350 for a down payment on the newer car. The Johnsons have agreed on a sales price for the newer car of $22,000. The money planned for tires will be spent for other incidental taxes and fees associated with the purchase.

1. Make recommendations to Harry and Belinda regarding where to seek financing and what APR to expect.

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2. 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 5 percent APR. Round your answers to the nearest cent. Round Monthly Installment Payment for a Loan in intermediate calculations to the nearest cent.

   For a 3-year loan: $

   For a 4-year loan: $

   For a 5-year loan: $

   For a 6-year loan: $

   Describe the relationship between the loan period and the payment amount.

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3. 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.

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