Question
Your have made a decision to purchase a new Pickup, and have negotiated a purchase price of $44,300. The dealer is giving you two finance
Your have made a decision to purchase a new Pickup, and have negotiated a purchase price of $44,300. The dealer is giving you two finance options. They will finance the entire purchase price ($44,300) at a bargain rate of 1.9% annual interest for 36 equal monthly payments, or they will give you an additional $2,000 rebate on the purchase and finance the balance at 6.0% annual interest for 36 equal monthly payments. (A) Which of these two alternatives is a better financing deal? (Hint: in either case you are getting the equivalent of $44,300 (the truck) in period 0, so compare the payments on the full purchase price at 1.9% with the payments on the lower purchase price after the rebate at 6.0%). (B) What would the rebate need to be in order to make these two options equal? (C) As recently as 2 years ago dealers were offering similar deals with 60 month financing. Why have they shortened the length of loans they are willing to commit too?
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