Alejandra wants to buy a new Ford F-150. She sees the following ad: "0% APR financing for
Alejandra wants to buy a new Ford F-150. She sees the following ad: "0% APR financing for 66 months OR Up to $8,000 in total savings."
1. She has negotiated a sales price of $35,000 and she has a $5,000 down payment. She is eligible for the full $8,000 cash rebate. Her bank has pre-approved her for a 5 year car loan at 8%. Assuming Alejandra wants the cheapest overall price, which option should she take? Should she take the 0% financing offer for 66 months from the dealer, or should she borrow the money from her bank at 8% to pay off the dealer and receive the $8,000 cash rebate?
2. Now suppose she is only able to get $3,000 cash back (with the 8% financing from her bank). Does this change her decision?
3. Suppose Alejandra is able to arrange financing for only 12% instead of 8%. The cash rebate remains at $8,000. Does this change her decision?