Reference no: EM132644984

Financial Planning Exercise - Comparing payments and APRs of financing alternatives

Because of a job change, Finn McBryde has just relocated to the southeastern United States. He sold his furniture before he moved, so he's now shopping for new furnishings. At a local furniture store, he's found an assortment of couches, chairs, tables, and beds that he thinks would look great in his new, two-bedroom apartment; the total cost for everything is $6,400. Because of moving costs, Finn is a bit short of cash right now, so he's decided to take out an installment loan for $6,400 to pay for the furniture. The furniture store offers to lend him the money for 48 months at an add-on interest rate of 8.5 percent. The credit union at Finn's firm offers to lend him the money - they'll give him the loan at a simple interest rate of 12.5 percent, but only for a term of 18 months.

a. Compute the monthly payments for the loan from the furniture store.

b. Determine the APR for the loan from the furniture store.

c. Determine the APR for the loan from the credit union.

d. Which is more important: low payments or a low APR?