Buying a Car Project (50 Maximum Points)
Due: Thursday, November 10, 2011
The purpose of this project is for you to get a better understanding of the total cost of new automobiles. As
part of that, demonstrate subject mastery by calculating the amount of each monthly payment for a variety
of loans that are part of purchasing an automobile and calculating the total that would be paid for the various
You must type up or print neatly the following directions (can be abridged) and write up all the
computations for each direction to earn full credit. A copy of these directions in MSWord format is
on the class web page.
You may work on the project individually or with a maximum of 2 partners. If you work with
someone, you must each turn in your own project report and indicate who you collaborated with on
the first page. I expect individual answers to question 15; other variations (insurance cost, down
payment used, etc.) by individual are OK.
ALL late projects will be marked one grade down (-6 points) per day late.
Begin Car Project
1. Visit a car dealership or look for classified ads in newspapers (or online) to find a brand-new 2011 car
that you would like to buy. (This may be a practical choice for the assignment or the “car of your dreams.”)
From the advertised sticker price, copy a brief description of the car as well as its price. Ask or call
someone at the dealership what the tax and license fees are for that car if it is purchased at the sticker price;
list tax and license fees (amounts) separately from price and each other.
2. Contact a bank, credit union, dealership, or other financial institution (You can either do this in-person,
access website, or by phone). Find out the rates for 3-year, 4-year, and 5-year new auto loans (You may
modify these to 5-year, 6-year or 7-year auto loan, depending on the bank’s policy and what payment you
can afford). If there is a required down payment for a new car, find out the percentage down required.
Find the rate for a 3-year personal loan. (Hint: this is always higher than the auto loan)
Provide a table of loans LIKE THE ONE ON THE NEXT PAGE: Yours need not be exactly like this
Loan Annual Rate Duration
Car loan 1 from credit 1.9% 3 years
Car loan 2 - Dealer 2.1% 4 and 5 year loans
Personal Loan - Credit 3% 3 years
Loan Annual Rate Duration
You must provide information for all loans - The smallest interest rate you may use for
any loan is 0.75% apr
Note that the personal loan is for exactly 3 years. Your report will describe exactly 4 loans: 3 auto loans and
1 personal loan.
3. Contact an insurance agent (phone or website) and ask what the basic automobile insurance would be for
that car. You will have to give the agent the year, model number, and the purchase price of the car. If you
are uncomfortable revealing your personal information, you can just get a standard quote for the project
from Mr. Reece.
Provide the insurance charge and indicate period (e.g., $23 per week). DO NOT GIVE ME MORE THAN
ONE RATE AND PERIOD; more than one gets you 0 points here.
CALCULATION OF LOAN PAYMENTS
4. Calculate the down payment you will need to make. (This varies, depending on your credit rating.) This
is where you start to show computation after typing/printing each direction. Down as percentage is applied
to sticker price only; you can add more if you wish. You use the same down payment for all car loans.
5. Calculate the amount of your auto loan as follows.
[Loan = Sticker Price of the car (do not include tax and license fees) minus the down payment].
6. Use the loan formula L (sec. 9.5) to calculate your monthly payment on the auto loan:
r = monthly rate = (annual interest rate)/12
Calculate the payments for: (A) 3-year auto loan, (B) a 4-year auto loan, (C) a 5-year auto loan. You may
modify it to 5-year, 6-year, and 7-year auto loan (or other) to match the information in Step 2. Show
calculations for all THREE auto loans.
7. Calculate the amount of money that you will need before you can take possession of the car. (Amount =
Down payment + tax and license fees)
8. Assume that you’re broke and have to borrow this money (the amount from Step 7) from a financial
institute to take possession of the car. Now calculate what the monthly payments would be on this personal
loan for 3 years by using the loan formula L and the personal loan rate (Step 2):
r = monthly rate = (annual interest rate)/12
9. Assume that you are allowed to pay your auto insurance in monthly payments. Convert your answer
from step 3 to months (if step 3 is in months, copy it here).
10. Add the payments from Steps 6, 8, and 9 above, to calculate the amount you must pay each month for
the first 3 years. (You should have 3 different answers, one for each part of Step 6).
11. Using the payments from each part of Step 6 above (payment on the main “auto” loan), calculate in
each case the amount of the first payment that will actually go toward paying off the ”standard” loan.
Remember although the monthly interest rate is the same, the first month’s interest is always higher than the
second month‘s interest because the principal is higher. So there will be less money go toward paying off
the principal during the first month than all the other months in a “standard” loan. To do so, use the
following formula to compute:
(Amount toward paying off the principal in the first payment = PMT – monthly interest rate r times Auto
12. Using the payments from each part of Step 6 above, calculate the total amount that you will pay for
each of the auto loans over the three, four, or five-year period (Again, you may modify it to over the five,
six, or seven-year period).
13. Using the payment from Step 8 above, calculate the total amount that you will pay for the personal loan
over its 3-year period.
14. For each length auto loan, add the results from Step 12 and Step 13 above to find out the total you will
pay for this car, excluding insurance, if you have to borrow lots and lots of money.
15. What have you learned from doing this project?
I will look for the answers in the order of the questions. If it is not in the same order, it is not
present. I use the values you give to check your results. You get credit only if work shown.
1 Description with price separated as instructed: 5 points.
2 Loan table provided with 3 car and 1 personal loan: 4 points. One point off for each
rate / duration pair not in correct format, missing,hard to find, extra value given.
3 1 point for the insurance quote as described. 0 otherwise
4 Down payment calculated or stated clearly: 1; 0 otherwise
There is EXACTLY one down payment amount for entire project.
5 Loan amount calculated clearly: 1; 0 otherwise
6 Calculations shown in sufficient detail to check for the 3 car loans: 4 points.
Answers presented neatly and so I can find them: 2 points. Missing, hard to read or
hard to find: 0 for that part.
7 Calculation shown: 1 point
8 Personal Loan: 3 points for calculations; 1 point for answer.
9 Monthly auto insurance provided: 1
10 2 points for correct totals; 4 points for complete calculations shown neatly
11 2 points for correct principle; 4 points for complete calculations shown neatly
12 2 points for correct values; 4 points for complete calculations shown neatly
13 1 points for correct value; 2 points for complete calculations shown neatly
14 2 points for correct values; 4 points for calculations shown neatly
15 5 points for thoughtful reflection; 3 points for reasonable conclusion based on data;
2 point for simplistic response; 0 for missing