Question

Assume that you want to buy an Audi for $35,000. You have only $5,000 available for the down-payment and you must finance the rest. A local Credit union is offering you a 3-year car-loan at 6% APR12. Rochester Audi dealer is offering you 3-year financing at 3% APR12. With either loan, you'd be repaying it in equal monthly installments. Another dealer at Bloomfield is offering you a $500 discount off the car price but no financing. Note: there are only two alternatives (Rochester and Bloomfield car dealerships), as you can NOT buy a car from that Cexiun! 25) A. Should you buy your car at Rochester or Bloomfield dealership? (enter the name). What discount ($ amount off the car price) would the Bloomfield dealer need to offer you in order to make you indifferent relatively to the Rochester car+financing dea?

Answer 1

Answer a. Should buy car at Rochester dealership.

Answer b. Bloomfield need to provide discount above $1500 because:

If we took credit from local credit union 0f $30000 at APR of 6% then we have to pay $2855.69 of total interest for 3 years period to local credit union.

If we took car from rochester dealership they will finance at APR of 3% then we have to pay $1407.71 of total interest for 3 years to rochester dealers.

Therefore the difference is $1447.98 in interest to pay. If Bloomfield dealership offer $500 discount then also we are paying more amount which is $947.98.

So, Bloomfield dealership need to provide above $1500 of discount to make deal successful.