COMPARE: Auto Loans Molly is celebrating her amazing new career and wants to upgrade her junky ld car for a g new Volkswagen Jetta. She heads to Volkswagen’s website and sees the following financing Part 1: 0% APR sounds PERFECT! Proksch Joctober 2012 Alyssa www.ngpf.org Finance for 1.9% APR NGPF Activity Bank Types of Credit Spanish Versi For 84 months Plus up to $500 Cash Allowance Select year 2022 – New Select a trim SE (Most Popular) – $24,790 MSRP Note: For this activity, assume Molly’s going to pay the exact MSRP of $24,790. This is most likely NOT true, but we’ll use it for simplicity. Answer the following questions using the details from the 0% APR offer above. Please round all answers to the nearest dollar. 1. Molly has a $2500 down payment saved for this purchase, and the dealer’s $1500 Cash Allowance will come straight off her total. How much loan does Molly need? Last updated: 4/7/22 inside
The Correct Answer and Explanation is :
Answer:
Molly’s loan amount is calculated as follows:
MSRP: $24,790
Down Payment: -$2,500
Cash Allowance: -$1,500
Loan Amount: $24,790 – $2,500 – $1,500 = $20,790
Explanation:
When purchasing a car with financing, the total cost is reduced by any upfront payments, including the down payment and dealer incentives. In Molly’s case, she has a down payment of $2,500, meaning she will pay this amount directly to the dealer. Additionally, the dealer is offering a $1,500 cash allowance, which acts as a discount, reducing the total amount that needs to be financed.
To determine the loan amount, we subtract both the down payment and the cash allowance from the car’s MSRP (Manufacturer’s Suggested Retail Price). This gives us a total loan amount of $20,790.
Since Molly is taking advantage of a 0% APR (Annual Percentage Rate) offer, her loan will not accumulate any interest over time. This means the total amount she pays over the life of the loan is exactly the same as the loan amount: $20,790.
This is a great financing option because 0% APR means there are no extra interest charges added to the loan, making it a cost-effective way to purchase a car compared to loans with higher interest rates.
If she had taken a loan with an interest rate (such as 1.9% APR), she would end up paying more over time due to accumulated interest. However, with 0% APR, she simply divides the loan amount by the number of months in her loan term to determine her monthly payments.
Thus, Molly’s loan amount is $20,790.