financing a vehicle

How a Financial Calculator Can Help Teens Make Deci$ion$ about Financing a Vehicle

20022002

22

Marsha A. Goetting Ph.D., CFP®, CFCSMarsha A. Goetting Ph.D., CFP®, CFCS

Professor & Extension Family Professor & Extension Family Economics SpecialistEconomics Specialist

Department of Agricultural Department of Agricultural Economics & EconomicsEconomics & Economics

Have you wondered? Have you wondered? • What the monthly payment What the monthly payment

would be on your dream would be on your dream car? car?

Have you wondered? Have you wondered? • How much you would save How much you would save

in interest charges by in interest charges by increasing your payments increasing your payments amount?amount?

WorkshopWorkshop• You are going to learn how to You are going to learn how to

solve these & similar problems solve these & similar problems quickly & easily by using a quickly & easily by using a financial financial calculatorcalculator

Financial CalculatorFinancial Calculator• Texas Instruments Texas Instruments

BA-35 Solar Business BA-35 Solar Business AnalystAnalyst

• Cost: about $20 at most Cost: about $20 at most discount storesdiscount stores

IntroductionIntroduction•Getting Getting Acquainted with Acquainted with your Financial your Financial CalculatorCalculator

Turn on Turn on

MODEMODE

CE/CCE/C

2nd2nd CPTCPT AC/ONAC/ON

NN

XX 12 12

% i% i PMTPMTPVPV FVFV

1212

FixFix

Financial Mode Financial Mode

FinFin 0. 0.

• If If FINFIN is not lower left is not lower left cornercorner

• PressPress MODEMODE AC/ONAC/ONCPTCPT

Decimal Function Decimal Function

FINFIN 0.00 0.00

• PressPress 2nd2nd

2nd2nd

FixFix

CPTCPT 22

Clearing Screen/DisplayClearing Screen/Display

• Press key oncePress key once• Clears Display Clears Display

• Corrects Incorrect EntriesCorrects Incorrect Entries

• Clears word “Error”Clears word “Error”

CE/CCE/C

Clearing Financial Registers Clearing Financial Registers

• Press keyPress key Clears numbers in Clears numbers in

registers & displayregisters & display

NN %i%i PVPV PMTPMT FVFV

CE/C 2nd2nd

CMRCMR

CE/C

Finance KeysFinance KeysNN

% i% i

PMTPMT

Number of PeriodsNumber of Periods

Interest RateInterest Rate

Payment AmountPayment Amount

Finance KeysFinance KeysPVPV

FVFV

Present ValuePresent Value

Future ValueFuture Value

Compute keyCompute keyCPTCPT

LoansLoans• Calculate payment amount Calculate payment amount

for car loan when we know:for car loan when we know:• Amount borrowedAmount borrowed

• Interest rateInterest rate

• Length of loanLength of loan

Dream Car Dream Car • Finance Finance

$21,000 $21,000

• APR 6%APR 6%

• 5 year loan5 year loan

Car Car • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan AmountLoan Amount 21,000 PV21,000 PV

• Periods Periods 5 x 12 = 60 N5 x 12 = 60 N• % Rate% Rate 6 6 12 = 0.50 %i12 = 0.50 %i• CPT PMT 405.99 CPT PMT 405.99 (don’t clear)(don’t clear)

Calculate Interest Calculate Interest•How much How much interest paid in 5 interest paid in 5 years?years?

Interest Paid Interest Paid • $405.99 payment$405.99 payment

• x 60 # periodsx 60 # periods

$24,359.33 paid $24,359.33 paid

- 21,000.00 car cost- 21,000.00 car cost

Interest Paid Interest Paid

•$3,359.33 $3,359.33 interest interest paid over 5 yearspaid over 5 years

Cheaper Wheels Cheaper Wheels • Finance Finance

$15,500$15,500

• APR 5.8%APR 5.8%

• 5 year loan5 year loan

Cheaper Wheels Cheaper Wheels • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan amountLoan amount 15,500 PV15,500 PV

• Periods Periods 5 x 12 = 60 N5 x 12 = 60 N• % Rate% Rate 5.8 5.8 12 = 0.50 %i12 = 0.50 %i• CPT PMT 298.22 CPT PMT 298.22 (don’t clear)(don’t clear)

Calculate Interest Calculate Interest• How much interest How much interest paid in 5 years?paid in 5 years?

Interest Paid Interest Paid • $298.22 payment$298.22 payment

• x 60 # periodsx 60 # periods

$17,893.14 paid $17,893.14 paid

- 15,500.00 car cost- 15,500.00 car cost

Interest Paid Interest Paid

•$2,393.14 $2,393.14 interest paid interest paid over 5 yearsover 5 years

Affordable Payments • Anthony Anthony

• Monthly payment $200Monthly payment $200

•How expensive of a car How expensive of a car can he AFFORD?can he AFFORD?

If… • 5 year loan 5 year loan

• Interest RateInterest Rate•4.5%4.5%

Affordable Car??? Affordable Car??? • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Payment Payment $200 PMT $200 PMT

• Periods Periods 5 x 12 = 60 N5 x 12 = 60 N• % Rate% Rate 4.5 4.5 12 = 0.38 %i12 = 0.38 %i

• CPT PVCPT PV 10,727.88 10,727.88

Summary = $200 PMT • 5 year loan5 year loan

• 4.5 Interest rate4.5 Interest rate

• Affordable Loan =Affordable Loan =• $10,727.88$10,727.88

Affordable Payments • Susie = $300 monthlySusie = $300 monthly

• How expensive of a car How expensive of a car can she AFFORD?can she AFFORD?

Affordable Car??? Affordable Car??? • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Payment Payment $300 PMT $300 PMT

• Periods Periods 5 x 12 = 60 N5 x 12 = 60 N• % Rate% Rate 6.5 6.5 12 = 0.54 %i12 = 0.54 %i

• CPT PVCPT PV 15,332.60 15,332.60

Summary = $300 PMT • 5 year loan5 year loan

• 6.5 Interest rate6.5 Interest rate

• Affordable Loan =Affordable Loan =•$15,332.60$15,332.60

How Long to Pay Off? • Tracy Tracy

•Afford $180 paymentsAfford $180 payments

•Cost of car $15,430Cost of car $15,430

•Interest rate 7.2%Interest rate 7.2%

Car $15,430Car $15,430• Clear registers Clear registers 2nd2nd CE/CCE/C CE/CCE/C• Credit balanceCredit balance 15,430 PV15,430 PV

• % Rate% Rate 7.2 7.2 12 = 0.60 %i 12 = 0.60 %i

• Payment Payment 180 PMT180 PMT

• CPT N 120.73 monthsCPT N 120.73 months

• 12 =12 = 10.06 years 10.06 years

Who would finance? Who would finance?

• Dealer--NoDealer--No

• Corporation--NoCorporation--No

• Mom & Day--MaybeMom & Day--Maybe

Alternatives: Alternatives: • Save for biggerSave for bigger

down paymentdown payment

• Find less expensive carFind less expensive car

• Get another jobGet another job

How Long to Pay Off? • RyanRyan

• Afford $230 paymentsAfford $230 payments

• Cost of car $19,500Cost of car $19,500

• Interest rate 6.6%Interest rate 6.6%

Car $19,500Car $19,500• Clear registers Clear registers 2nd2nd CE/CCE/C CE/CCE/C• Credit balanceCredit balance 19,500 PV19,500 PV

• % Rate% Rate 6.6 6.6 12 = 0.55 %i 12 = 0.55 %i

• Payment Payment 230 PMT230 PMT

• CPT N 114.48 monthsCPT N 114.48 months

• 12 =12 = 9.54 years 9.54 years

Who would finance? Who would finance?

• Dealer--NoDealer--No

• Corporation--NoCorporation--No

• Mom & Day--MaybeMom & Day--Maybe

How a Financial Calculator Can Help Teens Make Deci$ion$ about Financing a Vehicle

20022002