Evaluating finance packages. Assume that you’ve been shopping for a new car and intend to finance part of it through an installment loan. The car you’re looking for has a sticker price of $18,000. The local dealership has offered to sell it to you for $3,000 down and finance the balance with a loan that will require 48 monthly payments of $333.67; Adventure Vehicles will sell you the exact same vehicle for $3,500 down, plus a 60-month loan for the balance, with monthly payments of $265.02. Which of these two finance packages is the better deal? Explain.

Personally I would go for the local dealership's plan because the total interests paid are less, and the monthly payment is not much higher compared to the other plan, but it is also shorter.

There is no such thing as the best financial plan for everyone. Some people may not be able to pay more than $300 per month for a car, so they might have to choose the second alternative even though they will pay more interests. Both financial options have good things and bad things.

The local dealership requires a lower down payment, you pay less total interests but since the plan is shorter, the monthly payments are higher. On the other hand, adventure vehicles requires a higher down payment, charges more interests, but offers a longer financing plan which results in lower monthly payments.

It really depends on the specific client and how much money they have to make the down payment and how much money they will have to pay their monthly payments.

Explanation:

total sticker price $18,000

                                      alternative A                alternative B

                                      local dealer                  adventure vehicles

down payment              $3,000                         $3,500

financed amount           $15,000                       $14,500

payment per month      $333.67                       $265.02

total monthly payments     48                                60

total amount                  $16,016.16                    $15,901.20

interests paid                $1,016.16                       $1,401.20

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