Question

Benny and Hannah qualify for a 6-year car loan with a 9.1% APR or a 3-year car loan with an 7.5% APR. They found a new 2019 Ford F250 Superduty listed at $49,400. Their combined monthly income is $5800 during ski season, but they know that will drop in the summer. They know they shouldn't pay more than 10% of their income on car payments. b. Assuming Benny and Hannah will make payments for the entire life of the loan, how much will they pay monthly for each loan option? Are either of these options within 10% of their monthly income? c. Assuming Benny and Hannah will make payments for the entire life of the loan, how much will they pay in total for each loan option?

Answer 1

b. PV of car =49400
Rate per month =9.1%/12
Number of months =6*12 =72
Monthly Payment for above loan option =PV/((1-(1+r)^-n)/r) =49400/((1-(1+9.1%/12)^-72)/(9.1%/12)) =892.9153

Rate per month =7.5%/12
Number of months =3*12 =36
Monthly Payment for above loan option =PV/((1-(1+r)^-n)/r) =49400/((1-(1+7.5%/12)^-36)/(7.5%/12)) =1536.6472
No., none of these options are below 10% of monthly income.

c. Total amount for both the loans =892.9153+1536.6472 =2429.56