Question

You have proposed two methods of payments to the customer.
M1: Make a downpayment of 40% and the rest can be paid as EMI for a car loan at 12.5% and tenure of 5 years.
M2: Make a down payment of 15% and the rest can be paid as EMI for a car loan at 12.5% and tenure of 5 years.
How much does the customer has to pay in excess if he chooses M2 over M1 and does not go for prepayment?
(It is given that the car costs Rs. 7 Lakh)

Answer 1

Given:

Cost of car = 7lakhs

M1

1. Percentage of downpayment = 40%
2. Interest on EMI = 12.5%
3. Tenure = 5 years.

M2

1. Percentage of downpayment = 15%
2. Interest on EMI = 12.5%
3. Tenure = 5 years.

To find:

excess amount paid if the customer chooses M2 over M1.

Solution:

• M1

amount of downpayment = 40% of cost

                                          = 40/100 × 700000

                                          = ₹ 280000

remaining amount = 700000 - 280000

                               = ₹420000

interest on EMI = 420000 × 12.5% × 5

                          = ₹262500

Total amount paid = 280000 + 420000 + 262500

                              = ₹ 962500

• M2

amount of downpayment = 15% of cost

                                           = 15/100 × 700000

                                            = ₹105000

remaining amount = 700000 - 105000

                                = ₹595000

interest on EMI = 595000× 12.5% × 5

                          = ₹371875

Total amount paid = 105000 + 595000 + 371875

                               = ₹ 1071875

Difference between the total amount paid in M1 and M2

= 1071875 - 962500

= ₹109375

Therefore if the customer chooses M2 over M1 he has to pay an excess of  ₹109375.