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 the $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 on pages 97–98). Suggest how, when, and where they might finance the shortages by borrowing.

 

   

Table 7-2 APR 5 56700 c 8 9 10 11 12 13 14 15 16 17 18 19 20 Monthly Installment Payments for a Loan (Principal and Interest Required to Repay $1,000*) 89.32 89.79 90.26 90.73 91.20 91.68 92.16 92.63 12 $85.61 86.07 86.53 86.99 87.45 87.92 88.38 46.61 32.74 88.85 47.07 33.21 47.54 33.69 48.01 34.18 48.49 34.67 48.96 35.16 49.44 35.65 36.15 36.66 50.90 37.16 Number of Monthly Payments 24 36 48 60 72 $43.87 $29.97 $23.03 $18.87 $16.10 44.32 30.42 23.49 19.33 16.57 44.77 30.88 23.95 19.80 17.05 45.23 31.34 24.41 20.28 45.68 31.80 24.88 20.76 46.14 32.27 25.36 21.25 49.92 50.41 17.53 18.03 18.53 25.85 21.74 19.03 26.33 22.24 19.55 26.83 22.75 20.07 27.33 23.27 27.83 23.79 28.34 24.32 28.85 24.85 29.37 25.39 22.81 29.90 25.94 23.38 30.43 26.49 23.95 20.61 21.14 21.69 22.25 84 $14.13 14.61 15.09 15.59 16.09 16.60 17.12 17.65 18.19 18.74 19.27 19.86 20.44 21.02 21.61 22.21