Discussion Question 3.1, Planning a New Car Purchase
On Page 142 of your text, Answer Question, L01,2 #1. Develop a plan to guide Anna Davis through her first car buying process.
Discussion Question 3.2, Comparing Debit and Credit Cards
On Page 170 of your text, Answer Question, L03 #4. Give Advice on Debit vs. Credit Cards.
What are the benefits and drawbacks? Give good advice.
Planning and Comparing
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Planning and comparing
Discussion Question 3.1, Planning a New Car Purchase
Question, L01,2 #1. Develop a plan to guide Anna Davis through her first car buying process.
“Anna Davis has just graduated from college and needs to buy a car to commute to work. She estimates that she can afford to pay about $450 per month for a loan or lease and has about $2,000 in savings to use for a down payment. Develop a plan to guide her through her first car-buying experience, including researching car type, deciding whether to buy a new or used car, negotiating the price and terms, and financing “
Anna can look for options such as compact size cars, small-sized cars, electric care, secondhand cars, or mid-sized cars. As a student, a compact car is most preferable because she needs a car that is affordable, has low maintenance and operating costs, and a proper warranty. Anna should do market research first about prices, features, design, and so on. Before negotiating the price, the dealer must explain to her provisions such as buying options, insurance, and so on and compare prices while negotiating prices with what she has.
According to Anna’s budget, she can allocate a maximum of $450 per month, a down payment of $2000 from her savings. If a small car costs $18,200. Financing will be the best way to pay for the car.
With an interest rate of 8% and a duration of 4 years (48 months)
Monthly installment
| Particulars | |
| Cost | $18,200 |
| Down payment | $2000 |
| Remaining balance | $16,200 |
| Rate of interest | 8% p.a |
| Duration | 4 years |
| Monthly installment | $395.49 = PV(8%/12,48,16200) |
If the loan is for three years with an interest rate of 5% and a monthly instalment of $450, Anna will be able to purchase a car at $17,000. {PV (.05/12,3*12,450) + 2,000 = 17,000}
This offer is lower than her budget of a $450 monthly payment. Therefore, she should take it.
Discussion Question 3.2, Comparing Debit and Credit Cards
Question L03 #4. Give Advice on Debit vs. Credit Cards.
What are the benefits and drawbacks? Give good advice
Samuel Ramirez is trying to decide whether to apply for a credit card or a debit card. He has $8,500 in a savings account at the bank and spends his money frugally. What advice would you have for Samuel? Describe the benefits and drawbacks of each type of car
A debit card is preferable for good records because it is convenient and has a high-interest balance. A debit card is more secure because it uses a PIN. There is no line of credit for a debit card. It is also associated with overdraft problems when there are no good records (Billingsley, Gitman, & Joehnk, 2020). Some charges, such as flat annual fee, transaction fee, or a fee for using the card may be charged. However, a debit card can help avoid the high costs of credit cards and a potential credit problem. It can be considered for other transactions if one is seeking convenience (Billingsley, Gitman, & Joehnk, 2020).
A credit card, on the other hand, is good because it establishes good credibility that can help secure larger loans. Moreover, Samuel has the financial capability to pay any credit card along with high interest. I would advise him to take credit cards. Credit card is popular and easily available for those who have regular jobs (Billingsley, Gitman, & Joehnk, 2020). Credit cards have the highest interest rates among other consumer credits. Still, Samuel will have to contend with a grace period of 20 to 30 days of no interest charged if a payment is made. Other fees are also associated with a credit card. An annual fee of $25 to $40 a year (can be more for prestige cards) is charged by banks for using the card (Billingsley, Gitman, & Joehnk, 2020).
Reference
Billingsley, R. S., Gitman, L. J., & Joehnk, M. D. (2020). PFIN7: Personal finance. Cengage Learning