While shopping for a car loan, you get the following offers: Solid Savings & Loan is...
While shopping for a car loan, you get the following offers: Solid Savings & Loan is willing to loan you $30,000 at 14% interest for 6 years. Fifth Federal Bank & Trust will loan you the $30,000 at 10% for 4 years. Both require monthly payments. You can afford $690 per month. Which loan, if either, can you take?
Homework Answers
Monthly Payment = [Loan Amount * r] / [1 - (1 + r)-n]
For Solid Savings & Loan
Monthly Payment = [$30,000 * (0.14/12)] / [1 - {1 + (0.14/12)}-(6*12)]
= $350 / 0.5662 = $618.17
For Fifth Federal Bank & Trust
Monthly Payment = [$30,000 * (0.10/12)] / [1 - {1 + (0.10/12)}-(4*12)]
= $250 / 0.3286 = $760.88
So, Only the loan from Solid savings & Loan can be afforded.
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