You are in the process of purchasing a new automobile that will cost you $25,000. The dealership is offering you either a $1,000 rebate (applied toward the purchase price) or 3.9% financing for 60 months (with payments made at the end of the month)
You have been pre-approved for an auto loan through your local credit union at an interest rate of 7.5% for 60 months. Should you take the $1,000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?
Answer: Financing through credit union:
First we need the monthly interest rate = APR / m = 0.075 / 12 = 0.00625 or 0.625%.
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