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July 7, 2014 at 4:48 am #2235SharmaKeymaster
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Background: You are looking for a car that costs no more than $15,000. To help you make a decision, you need to find and compare 1 new and 1 used car to buy. Once you complete all tasks and questions below, you will need to make a poster to summarize your findings. The poster must include the pictures and details of each car, the monthly payments and your answers to questions 1 and 2 (you may include more on the poster, but this is the minimum).
Task 1: Shopping for Cars
Look online (autotrader.com) or in advertisements in a newspaper to select your cars. Note: you need to know the PRICE of the car, NOT a lease or monthly amount.
Cut out or print the picture of the cars you would like to buy. Remember, you need 1 new and 1 used car.
List the details of the car underneath the picture (this includes, the make, model, year, color, number of miles, and features, such as a CD player, leather seats, etc).
Task 2: Calculating the cost of paying for each car
You have no money for a down payment, so you will take a loan for the entire price of the car. We will assume you get a loan with compound interest, so you will be using the formula, , where A is the total amount you will pay, P represents the
amount of money you need to borrow, r represents the interest rate (as a decimal), n represents the number of times the loan will compound each year and t represents the number of years the loan will be.
New Car: Interest rate is 1.9%, compounded annually; you will get a 5year loan.
Show your math to calculate A, the total amount you will pay.
Now calculate your monthly payment (the total divided by the number of months of the loan).
Used Car: Interest rate is 7.9%, compounded annually; you will get a 5year loan.
Show your math to calculate A, the total amount you will pay.
Now calculate your monthly payment (the total divided by the number of months of the loan).
Part 3: Reflections about interest rates
1. Which car would you buy and why?
2. What effect does a higher interest rate have on the total amount you pay?
3. If you buy a car and have poor credit (you have not shown that you are good at paying back loans on time or you have not borrowed money before), you have to pay a higher interest rate. For the used car you chose above, calculate the total cost if you have poor credit and the interest rate is 14.9%. Show your math below.
4. What effect does good or poor credit have on how much you pay for a car?
5. If you have a down payment when you buy a car, it can save you money. Assume you saved $5,000 for the new car. Calculate what the monthly payments would be if you paid $5,000 in a down payment and then took a loan for the rest (still at 1.9% interest)
6. Sometimes you can get a longer loan. Assume the new car you found can be purchased at 1.9% interest, compounded annually, and you can get an 8year loan. Calculate the total cost (A) and the monthly payments. Is this a good option? Why or why not?
7. What things will you consider when purchasing a car in the future?
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