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Consider the following cases examining the benefits of making a down payment.
Case 1: You want to buy a car. Suppose you borrow $30,000 for two years at an APR of 5%.

Case 2: You want to buy a car. Suppose you borrow $30,000 for two years at an APR of 5% and make a down payment of $6,000. This means you borrow only $24,000.
What are the advantages of making a down payment? (Select all that apply.)
reduction in the total interest paid over the life of the loan
reduction in term of the loan
increase in monthly payment
increase in the total interest paid over the life of the loan
increase in term of the loan
reduction in monthly payment


Why would a borrower not make a down payment? Note: One other factor to consider is the interest one would have earned on the down payment if it had been invested. Typically, the interest rate earned on investments is lower than that charged for loans.

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