Question

Dennis Lamenti wants to buy a new car that costs $15,543.77. He has two possible loans in mind. One loan is through the car dealer; it is a four-year add-on interest loan at 7 3 4 % and requires a down payment of $1,000. The second is through his bank; it is a four-year simple interest amortized loan at 7 3 4 % and requires a down payment of $1,000. What is the difference between the two loans?

A) The interest rate
B) The loan term
C) The down payment
D) The type of interest calculation

Answer 1

The difference between the car dealer and bank loans offered to Dennis Lamenti is the type of interest calculation; (option D) both offer the same interest rate, loan term, and down payment.

Step-by-step explanation:

The difference between the two loans that Dennis Lamenti is considering for buying a new car is D) The type of interest calculation. Both loans have the same interest rate of 7 3/4%, the same loan term of four years, and both require the same down payment of $1,000. The car dealer offers an add-on interest loan where interest is calculated on the original principal for the entire term of the loan at the beginning and added to the principal. Whereas the bank offers a simple interest amortized loan where the interest is calculated on the remaining balance of the loan periodically, leading to a decrease in interest over time as the principal is paid down.