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10B

Car Loan Project

Introduction:

My car of choice is a new 2018 Chevrolet Volt Premier. The exterior color is white with

a black interior design. This vehicle is on sale for $37,726 at Mike Savoie Chevrolet, Inc.. With a

6% sales tax, the price is $39,989.56. I am choosing this car because it is a hybrid. It is more

environmentally friendly than most cars. It can drive around 53 miles on a full battery, and an

additional 42 miles per gallon once the battery runs out. It takes 13 hours to fully charge using a

standard household outlet. Considering I will be using this car to merely drive to and from school

most days, this mileage is reasonable. I only have enough saved to make a 20% down payment

on the car, so I will have to borrow $31,991.65.

Figure 1. 2018 Chevrolet Volt Premier

Figure 1 above is an image of my chosen car, a new, white, 2018 Chevy Volt.

Part A:

If I take out a 5-year auto loan from Credit Union One, the annual interest rate would be

2.94%. It will be useful to know the monthly payment needed to pay off this loan. This can be

calculated using the following equation with P as the initial payment amount, r as the monthly

rate of change as a decimal, and n as the amount of payments during the term of the loan.
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𝑃(1 + 𝑟)𝑛 ∗ 𝑟
payment =
(1 + 𝑟)𝑛 − 1

Shown in Figure 2 below is the calculation process for finding the monthly payment for

this car loan.

𝑃(1 + 𝑟)𝑛 ∗ 𝑟
payment =
(1 + 𝑟)𝑛 − 1

0.0294
𝑟= 12
= 0.00245

𝑛 = 5 ∗ 12 = 60

$31991.65(1 + 0.00245)60 ∗ 0.00245

payment =
(1 + 0.00245)60 − 1

payment = $574.00

Figure 2. Monthly Payment for 5-Year Loan

Figure 2 above displays the formula for finding the monthly payment of a loan. The

initial loan amount is $31,991.65. To find the monthly interest rate as a decimal, the annual

interest rate of 2.94%, or 0.0294, is divided by 12. To find the number of monthly payments in

the span of the loan, the number of years (5) in the term of the loan is multiplied by 12, the

amount of months in a year. These values are then entered into the payment equation in Figure 2

to find $574 as the monthly payment needed to pay off the loan in 5 years.

Figure 3. Monthly Payment Confirmation

The monthly payment amount found with the formula in Figure 2 can be confirmed by

using the tmvPmt() function on the TI-Nspire CX calculator software. This function is displayed

in Figure 3. The total amount of payments during the term of the loan (60) is entered first. Then,

the annual interest rate as a percent (2.94) is entered. The third value is the initial payment
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amount of $31,991.65. The fourth number is the amount still owed after the 5-year term of the

loan is over ($0). The last two numbers are the amount of payments in a year and the number of

compounding per year. In this situation, both of these values are 12. The calculated result is

-573.995. This is the amount of money I must pay each month to pay off the car loan. It is

negative because money is being given. This value rounds to $574.00 payed per month, which

matches the payment calculated in Figure 2.

Part B:

Using a spreadsheet can help with finding the amount of money still owed after each

month, the interest rates for payment, and the total amount of money needed to pay off the loan.

Table 1
Monthly Loan Amount, Interest, and Payment

Table 1 above displays the monthly loan amounts, interest, and payment for the first and

last four months of the term of the loan. Column A displays the months, 1 through 60, using the

seq(n,n,first,last) function. Column B shows the portion of the loan that has yet to be payed. The

first month is just the initial loan amount. The second monthly loan amount, in cell b2, is
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calculated by adding the previous monthly loan amount (b1) and the interst from the first month

(c1) and subtracting the monthly payment made (d1). This creates a recursive formula (= b1 + c1

– d1) that is auto-filled down in the rest of Column B. Column C displays the interest on each

monthly loan amount. This is calculated by multiplying the loan amount left for that month by

the monthly interest rate as a decimal. For example, to find the interest on the first loan amount,

the formula used in cell c1 is b1 * 0.00245. This is a recursive formula that is auto-filled in the

rest of Column C. Column D is the monthly payment amount calculated in Figures 2 and 3.

Table 2
Total Payment

Table 2 displays that, by taking the sum of Column C, the interest rates on each monthly

loan amount, and adding this to the initial loan amount of $31,991.65, the total amount of money

needed to pay off the loan can be found. This value is $34,439.71, which is $2,448.06 more than

the initial loan amount. This means that, to fully pay off the $31,991.65 loan I need to purchase

my car, I will need a total of $34,439.71.

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Part C:

I am thinking of getting a job in the near future, so I might be able to pay off my loan

early. I want to know how much money I will save by doing this. A spreadsheet can help me

figure out all of the payment amounts.

Table 3 Table 4
Early Monthly Payment Early Total Payment

Tables 3 and 4 display the results of paying off the loan in less than 5 years. This is done

in the situation above by paying 10% more each month of the original monthly payment found in

Part A. This new monthly payment value is found in Table 3 by multiplying the original monthly

payment value of 574 by 1.10 to represent the additional 10% being payed each month. This new

value is $631.40.

Table 4 shows how long it will now take to fully pay off the loan as well as the total

amount of money needed to pay it. It can be seen in Table 4 that, after row 55, the priciple, or

money still needed to be payed, and interest values become negative. This means that the loan is

payed off by month 55 instead of the full 60 months. Tables 4 also shows the total amount of

money needed to pay off the loan when interest is taken into account. This value of $34,200.57 is

shown in the highlighted cell. It can be found by taking the sum of the interest values in Column

C up to the 55th row and adding this to the initial loan amount of $31,991.65. The original total
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payment amount found in Table 2 is $239.14 more than the early total payment found in Table 4.

By paying off the loan early, money can be saved.

Part D:

I might be ready to just get a new car by the end of five years, so I might decide to get a

3-year loan instead of a 5-year loan. In order to make this decision, I will find the monthly

payment and total payment for a 3-year loan with the same initial loan amount and interest rate

as the 5-year loan.

𝑃(1 + 𝑟)𝑛 ∗ 𝑟
payment =
(1 + 𝑟)𝑛 − 1

𝑛 = 3 ∗ 12 = 36

31991.65(1 + 0.00245)36 ∗ 0.00245

payment =
(1 + 0.00245)36 − 1

payment = $929.51

Figure 4. Monthly Payment for 3-Year Loan

Figure 4 displays the process for calculating the monthly payment amount to pay off a 3-

year loan of $31,991.65 at a 2.94% annual interest rate. This amount is calculated in the same

way as described in Figure 2. The only difference is the number of payments made during the

term of the loan, represented by the variable n. Instead of 60 payments in 5 years, it is 36

payments for 3 years. This alters the monthly payment amount from $574 to $929.51.
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Table 5
Total Payment for 3-Year Loan

Table 5 above displays the process for calculating the total payment of the 3-year loan. It

is found the same way as described in Part B. Column B shows the portion of the loan that has

yet to be paid each month. Column C shows the interest rates for each of the remaining loan

payments in Column B. Column D displays the monthly payment calculated in Figure 4. The

total payment is shown in the highlighted cell. It is calculated by taking the sum of the interest

rates and adding it to the initial loan amount. The total payment for the 3-year loan is

$33,462.37. This is $977.34 less than the total payment of $34,439.71 for the 5-year loan.

Conclusion:

In order to buy my 2018 Chevrolet Volt Premier, I will have to take out a loan of

$31,991.65. The annual interest rate if I get the loan from Credit Union One is 2.94%. I will get a

5-year loan so that my payment per month is only $574 instead of the $929.51 for the 3-year
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loan. This will make my total loan payment $34,439.71, which is $977.34 more than the total

payment for the 3-year loan, but I will not have to pay as much per month.

During this activity, I learned many things about cars and loans. I now have a better

understanding of how to calculate monthly payments as well as total payment amounts, including

interest. I also gained more knowledge of car prices, the process for buying a car (even though I

didn’t actually buy the car), and annual interest rates on car loans. This activity also made me

really want a new, white, 2018 Chevrolet Volt Premier!