How do I calculate the present value of buying new car?
By Cars & Motorcycles on Apr 18, 2009 with Comments 1
Reece Mak asked: The car now is :$22000
The saleman offers
N = 5 yr
PMT = $350/mth
Down PMT= $3000
Interest rate = ???? I dont know what to get, i just get the t-bill one. If i am wrong, please let me know.
I have a HP 10BII financial calculator?
do i plug these into my calculator?
N=60 (5 x 12)
PMT = 350
PV =3000
I/YR = 4.94 (5 yr yield from t-bill 6/5/2006) <- not sure should i use t-bill rate or not
4.94/60
For FV, i got $24,669.85; however, this is the price i am going to pay in 5 yr.
How do I know the PV of the car?
Another question, some people take out loans to buy a car, if i want to take out 5000 for down payment? How do I compare them? I mean should i borrow or should i make a monthly payment or should i payoff the car?
Filed Under: Buying New Car
About the Author:
Alright… I’m kinda confused with all your info but…
N = 60 (5*12)
I = ??
PV = 19,000 ($22,000 – $3000 down payment)
PMT = -350 (negative because you need opposite signs)
FV = 0 (so it paid off in 60 months)
P/Y = 12 (periods per year)
I think interest is what you are looking for. Which is approx. 4.01% when the above is solved. 4% is a REALLY good rate for right now but the current average for new car loans is about 5-10% depending on your credit. 4% is possible from a promotional standpoint. I’m not sure why you are trying to find the future value of your down payment in the second set of information. Basically, the information I typed aboves means that if you take a loan out for $19000 and pay $350 per month for 5 years, it would be paid off, using 4.01%.
The PV of the car is what you are taking the loan out for.
You would only want to take a loan out for a down payment IF the interest rate is better than the interest rate of the car loan, which is unlikely.
I recommend paying as much of a down payment as possible and make as large of monthly payments as possible. Make sure that when you make payment above the $350, that you state that it is for Principle Only, this way your loan will get paid off faster and you will pay less interest.
Hopefully this makes sense… let me know if I’ve confused you.