Financing a new car: You are buying a new car, and you plan to finance your purchase with a loan you will repay over 48 months. The car dealer offers two options: either dealer financing with a low...

Financing a new car: You are buying a new car, and you plan to finance your purchase with a loan you will repay over 48 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 $14,000 at an APR of 3.9%. If you take the rebate, you will reduce the amount you borrow to $12,000, but you will have to go to the local bank for a loan at an APR of 8.85%. Should you take the dealer financing or the rebate? How much will you save over the life of the loan by taking the option you chose? To answer the first question, you may need the formula

Here M is your monthly payment, in dollars, if you borrow P dollars with a term of 48 months at a monthly interest rate of r (as a decimal), and r = APR 12 .