Finance question: Need to create two finance plans and figure out the interest total for each possible loan.

Question

I picked out the car and everything and it showed me the highest and lowest payment plan, but I am not sure how to go about calculating the interest and the rest of the question if I don t know (or don t know if I need to know) the amount I need to borrow as a loan. But here is the question and some information from carmax.com that I used. Any and all help would be greatly appreciated!!!

Decide on a car that you would like to purchase and compute two different plans to finance the car. Find out what interest rates are available to you, either through the dealer or through a bank. In order to make your finance plans distinct you must change at least one of the following: the interest rate, the down payment or the length of the loan. Determine the total interest that will be paid on each possible loan. You must show all your work using the formulas discussed in the chapter. The formulas may be hand-written with the appropriate numbers. Summarize and discuss which plan you would choose. Explain why. It is expected that your data is real. Be sure to include your sources (car dealer, ad in the paper, online quote) in your summary. (15 points)

https://www.carmax.com/cars/lexus/is-250/2008/12592901

payments – 72 monthly payments
lowest - $5,000 down payment and APR of 5% ($195/month)
highest - $0 down payment and 18% APR ($390/month)

Answer 1

You need to create a loan amoritazation schedule.  The following website has a sample excel spreadsheet you might want to use, http://www.excel-easy.com/examples/loan-amortization-schedule.html.  

 

The question says to use the formulas discussed in the chapter.  So if this sample is using different formulas you may have to change it.  However, a properly created amortization schedule will provide the answers you need.  In the sample schedule on the site I gave you, when you total the column D will total the interest paid over the life of the loan.  

 

When choosing which loan you would choose consider interest rate, total interest paid and payment amount.  If you can only afford a low payment that would usually require a longer loan with less down payment, resulting in a higher interest rate and more interest payment but if that is all you can afford that can be a legitimate answer to the question.  If you can afford a higher payment then you would choose a lower interest rate and lower total interest paid.  

 

Hope this helps.