Utstat.utoronto.ca
USING CONFUSING LOAN DEALS TO SELL CARSYou can buy a $30,000 Honda at their ‘special’ (looks good in an ad) interest rate of 3% per annum convertible monthly on a 36 month loan repayment schedule. Ford is using 1.5% per annum on their $30,000 cars, on a 48 month repayment schedule. What are you really paying?KHONDA = 30,000/ a36 (at 0.0025 per month)KFORD = 30,000/ a48 (at 0.00125 per month)Then look at it this way: in reality market interest rates are (say) 6% per annum convertible monthly. How much would I need now in my savings account, which pays 6%, to buy these cars? PVHONDA = KHONDA a36 (at 0.005 per month)PVFORD = KFORD a48 (at 0.005 per month)The rates quoted in the ads are really just a marketing gimmick, and a way of giving a price cut without explicitly reducing the listed price. To make a comparison you would choose one interest rate that was realistic in your personal circumstances, probably the actual market rate (eg on government bonds), and then use that one rate when doing the discounting. ................
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