Question

An advertisement from a car dealer offers the following choice: A 2% annual interest rate on...

An advertisement from a car dealer offers the following choice: A 2% annual interest rate on a six-year car loan (monthly payments) for a car priced at $30,000 or a $5000 discount off the price (i.e. $25,000 price tag) with you supplying your own financing. Assume that you can borrow 100% of the purchase price and that the annual interest rate your bank would charge you on a six-year loan is 5%. The car loan is similar to a mortgage with 72 equal monthly payments. Which is the better deal?

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