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you are in the process of purchasing a new automobile that will cost you $35,000. the dealership is offering you either a $5,000 rebate (applied toward the purchase price) or 4.5% financing for 60 months (with payments made at the end of the month). you have been pre-approved for an auto loan through your local credit union at an interest rate of 8.0% for 60 months. should you take the $5,000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 4.5% apr?

Respuesta :

Instead of $5,000 rebate and finance through your credit union or forgo the rebate ,we should finance through the dealership at the rate 4.5% apr.

1).If we take rebate of $ 5000, we will get the loan at 8% from bank for 5 year

$ 35000 - $ 5000 = $30000

Interest on $30000 at 8% for 5 years

= (1.08)^5

= 1.587

Total amount to be paid

= (30000* 1.587)

= 47610

2.) if we doesn't take the rebate, we will get the loan at 4.5% for 5 years

$35000

Interest on $ 35000 at 4.5% for 5 years

=  (1.04)^5

= 1.22

Total amount to be paid

= (35000*1.22)

= 42700

Clearly taking rebate is not beneficial to us.

So it is recommendary to not go for the rebate, rather take the loan at 4.5%

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