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When interest rates are low, some automobile dealers offer loans at 0% APR, as indicated in a 2016 advertisement by a prominent car dealership, offering
When interest rates are low, some automobile dealers offer loans at 0% APR, as indicated in a 2016 advertisement by a prominent car dealership, offering zero percent financing or cash back deals on some models. Zero percent financing means the obvious thing-that no interest is being charged on the loan. So if we borrow $1,200 at 0% interest and pay it off over 12 months, our monthly payment will be 51,200/12 = $100. Suppose you are buying a new truck at a price of $20,000. You plan to finance your purchase with a loan you will repay over two years. The dealer offers two options: either dealer financing with 0% interest, or a 52,000 rebate on the purchase price. If you take the rebate, you will have to go to the local bank for a loan (of $18,000) at an APR of 6.5%. Should you take the dealer financing or the rebate? (Assume you take the deal that saves you the most money.) dealer financing @rebate How much would you save over the life of the loan by taking the option you chose? (Round your answer to the nearest cent.) Book 1/2 POINTS PREVIOUS ANSWERS CRAUDQL3 4.2.031D. MY NOTES ASK YOUR TEACHER Over the past 40 years, interest rates have varied widely. The rate for a 30-year mortgage reached a high of 14.75% in July 1984, and it reached 3.31% in November 2012. A significant impact of lower interest rates on society is that they enable more people to afford the purchase of a home. In the following exercise, we consider the purchase of a home that sells for $125,000. Assume that we can make a down payment of $25,000, so we need to borrow $100,000. We assume that our annual income is $47,000 and that we have no other debt. If we can afford to pay a monthly amount of 5846.67, determine how much we can borrow if the term is 30 years and the interest rate is at the historic high of 14.75%. (Round your answer to the nearest dollar.)
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