You're looking to buy a car with sunroof and leather seats at a price of $20,500 after applicable cash back incentives. Being a poor college student, you have cash to pay taxes, title, license & fees and need to finance the car's purchase price. You smartly researched your finance options and got pre-approval at a 2.9% APR for 60 months on your own so you're not at the mercy at depending on financing from the car dealership. Ford is offering 0% APR financing for 60 months or an additional $1,000 cash back which would be used as a down payment that reduce that amount that you would need to finance. You would use your 2.9% APR pre- approved financing if you elect the additional $1,000 cash back option. Answer the following questions.
- What would be your monthly car loan payment under the Ford's 0% APR financing offer (assume a 60-month loan term)?
- What would be your monthly car loan payment under the Ford's $1,000 cash back offer and your 2.9% APR pre-approved financing (assume a 60-month loan term)?
- At what APR would you be indifferent between the two offers? In other words, at what APR would you have the same monthly payment (assuming a 60-month loan term) for the $1,000 cash back offer as you would with the 0% APR financing offer?
- Construct an amortization schedule the for the loan from #2 for all 60 monthly payments. What would be your loan balance after 3 years (36 payments)?