Rebate Versus Low Interest Rate. Kyle Parker of Concord, New Hampshire, has been shopping for a new car for several weeks. He has negotiated a price of $34,000 on a model that carries a choice of a $2,500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1,000 down payment and a monthly payment of $578 for 60 months. Kyle has also arranged for a loan from the bank with a 5 percent APR. Advise Kyle about whether he should use the dealer financing or take the rebate and get financing from the bank.

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02-03-2020
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Rebate Versus Low Interest Rate. Kyle Parker of Concord, New Hampshire, has been shopping for a new car for several weeks. He has negotiated a price of $34,000 on a model that carries a choice of a $2,500 rebate or dealer financing at 2 percent APR. The dealer loan would require a $1,000 down payment and a monthly payment of $578 for 60 months. Kyle has also arranged for a loan from the bank with a 5 percent APR. Advise Kyle about whether he should use the dealer financing or take the rebate and get financing from the bank.

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dannwaeze45 dannwaeze45 · Answer 1 · 2020-03-06T11:05:48+01:00

Answer:

Answer explained below

Explanation:

We will need to compare the two options to determine which option has the minimum cash outflow.

Total Outflow under Option 1 i.e. REBATE is $35,667

Total Outflow under Option 2 i.e LOW INTEREST RATE is $35,705

Since outflow in case of rebate is less as compared to low interest rate, Kyle should opt for Rebate Option.

Note - For loan taken from bank, no repayment detail has been provided in the question, so the period has been taken as 5 years i.e. 60 months similar to the dealer Financed period.