Question

You are buying a new car, and you plan to finance your purchase with a loan you will repay over 60 months. The car dealer offers two options: either dealer financing with a low APR, or a $2000 rebate on the purchase price. If you use dealer financing, you will borrow $15,000 at an APR of 3.7%. If you take the rebate, you will reduce the amount you borrow to $13,000, but you will have to go to the local bank for a loan at an APR of 8.89%. To answer the first question below, you may need the following formula, where M is your monthly payment, in dollars, if you borrow P dollars with a term of 60 months at a monthly interest rate of r (as a decimal), and r = APR/12. M = Pr(1 + r)60 (1 + r)60 ? 1 Should you take the dealer financing or the rebate?

          You are buying a new car, and you plan to finance your purchase with a loan you will repay over 60 months. The car dealer offers two options: either dealer financing with a low APR, or a $2000 rebate on the purchase price. If you use dealer financing, you will borrow $15,000 at an APR of 3.7%. If you take the rebate, you will reduce the amount you borrow to $13,000, but you will have to go to the local bank for a loan at an APR of 8.89%. To answer the first question below, you may need the following formula, where M is your monthly payment, in dollars, if you borrow P dollars with a term of 60 months at a monthly interest rate of r (as a decimal), and r = APR/12.
M = 
Pr(1 + r)60
(1 + r)60 ? 1
 
Should you take the dealer financing or the rebate?

Added by Grace W.

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