# Interest/Loan Payment Word Problem

• Sep 27th 2010, 11:04 AM
Genetic08
Interest/Loan Payment Word Problem
You go to a car dealer and pick out a new car that costs \$55,000. The dealer is running a promotion where you can get \$5,500 cash back and pay 3.2% interest on the loan monthly payments for 5 years, or get zero cash back and pay 0% APR on the same loan. Which loan will you pay less for total and by how much?

I figure that the no cash back deal with 0% APR is the basic loan amount for \$55,000. However, the cash back deal would involve a loan total of \$49,500 since you subtract the cash back from the original amount. Would I simply attribute the interest formula to this problem? The reason I'm confused is because this involves interest and a loan payment plan in one problem.
• Sep 27th 2010, 12:10 PM
SpringFan25
You are right that under the 0% scenario, the total repayment must be 55000.

i would assume that you can deduct the cashback amount from the outstanding loan in the 3.2% scenario as the question is trivial otherwise.

So, the loan term is 60 months, loan amount 49500, interest 3.2% ...find the premium using the usual method