For this Discussion Board assignment I chose my dream car to be the 2012 Nissan GT-R, priced $89,500 at Edmunds.com, and the rate of the auto loan from Bank of America is 2.74% for periods of up to 60 months. I intend to go for a 5 year loan, so I fit in this category.
Based on this information and the offer of my community financial institution to reduce my interest rate by 2%, I the following calculations are relevant:
Interest = Sale price * Rate * Time = $89,500 * 0.0074 * 5 = $3,311
Total cost = (Sale price * Rate) Time + Sale price = ($89,500 * 0.0074) * 5 + $89,500 = $92811.5
F(t) = (89,500 * 0.0074) * t + 89,500 = 662.3t + 89,500
Monthly payment = Total cost / number of months = $92811.5 / 60 = $1,546.85
Checking out how much one spends if 2% is not decreased on the auto loan; the calculations would have looked:
Interest = Sale price * Rate * Time = $89,500 * 0.0274 * 5 = $ 12261.5
Total cost = (Sale price * Rate) Time + Sale price = ($89,500 * 0.0274) * 5 + $89,500 = $101761.5
F(t) = (89,500 * 0.0274) * t + 89,500 = 2,452.3t + 89,500
Monthly payment = Total cost / number of months = $101761.5 / 60 = $1,696.025
Based on these calculations, it appears that I would have lost $149.175 every month for 5 years, adding up to ( 149.175*60) i.e. $8950.32 over the whole period, if a deal of a 2% lower interest rate on the loan is not given. This $8,950.5 is almost 10% of the Nissan’s price and it equals the interest rate savings of 2% multiplied by the term of the loan of 5 years.
References
Bank of America. (2011, November 7). Vehicle and Other Loans. Retrieved from http://www.bankofamerica.com/vehicle_and_personal_loans/index.cfm?adlink=&context=&override_debug_mode=DEBUG&statecheck=NY&template=auto_loans&type=
Edmunds. (2011, November 7). 2012 Nissan GT-R. Edmunds-com. Retrieved from http://www.edmunds.com/nissan/gt-r/2012/