Question

You purchase a new car. The dealership will provide financing the purchase price of $32,000 and will allow you to defer your first payments for 12 months. After the deferral period you make 48 monthly payments. The interest rate is 6% per year and the interest accrues during the deferral period.

1. Draw the cash slow diagram from your perspective
2. How much are your monthly payments beginning after the deferral period
3. How much interest will you pay over the life of your car loan? (You make all 48 payments)
4. You decide to pay off your car loan early. What will be your payoff when you make the 40^th scheduled payment?
5. How much interest did you save by paying the loan off in 40 months versus keeping the loan for the original term of 48 months?

Answer 1

al Inflow outflow outflow 797 48 houth 32000 12 worth 797 36 months each month each Mouth

b Principal Amount after 12 months monthly payment after deferral period where Pis the principal or the amount that is borrowed as a loan working 32000*6% [Px RX (1+r)^N]/((1+R)^N-1) Amount $33,920 $797 33920 6%/12 = 0.5% R is the rate of interest that is levied on the loan amount (the interest rate should be a monthly rate) N is the tenure of repayment of the loan or the number of monthly installments that you will pay (tenure should be in months) 48 months с interest paid over life of car loan (797*48) - 32000 $6,256 d payoff if paid in 40 months montly payment required if paid in 40 month P $938 (P x RX (1+R)^N]/((1+R)^N-1] 33920 6%/12 = 0.5% 40 months R N payoff in 40th month (938*40)-(797*39) $6,437 e interest saved 6256-((938*40)-32000) 736 Sheet1 Sheet2 Sheet3