Remember that Molly has a $2500 down payment saved for this purchase. The dealer will take the $500 Cash Allowance straight off her total. How much loan does Molly need?
The correct answer and explanation is :
To determine how much loan Molly needs, we need to subtract both her \$2,500 down payment and the \$500 cash allowance from the total purchase price of the vehicle.
However, the question does not specify the total purchase price. To proceed, let’s assume the purchase price is \$25,000 as an example. You can substitute this with the actual price if known.
Step-by-Step Calculation:
Total Purchase Price: \$25,000
Down Payment: \$2,500
Cash Allowance (Dealer Discount): \$500
Total Deductions:
\$2,500 (down payment) + \$500 (cash allowance) = \$3,000
Loan Needed:
\$25,000 − \$3,000 = \$22,000
So, Molly needs a loan of \$22,000.
300-Word Explanation:
When someone buys a vehicle, the total cost of the car can be reduced by a down payment and any cash allowances or rebates offered by the dealer or manufacturer. The loan amount is the remaining balance after these reductions.
In Molly’s case, she has saved \$2,500 as a down payment. A down payment is an upfront amount paid out-of-pocket to lower the loan amount and show the lender financial commitment. Additionally, the dealer is offering a \$500 cash allowance, which is essentially a discount or rebate directly subtracted from the vehicle’s purchase price.
To calculate the loan needed, we combine the total reductions first:
- \$2,500 from Molly’s savings
- \$500 from the dealer
This totals \$3,000 in reductions. If the vehicle costs \$25,000, then you subtract the \$3,000 to get the final amount that must be financed through a loan, which is \$22,000.
This calculation is important because it affects how much Molly will pay monthly, how much interest she will pay over time, and how long it will take to pay off the loan. The smaller the loan, the less interest she’ll pay in the long run. So, the combination of down payment and dealer discounts significantly helps reduce her financial burden.