# Quiz 7: Using Consumer Loans Part Iv: Managing Insurance Needs

Bridget can opt for an education loan. There is flexibility in availing education loan. The student will not repay the interest immediately after borrowing money. She has the option to pay the interest one year after the completion of the studies. Hence, student is entitled to start paying the interest. For example: if the duration of studies is 2 years, then the student would start paying the interest after 3 years. This would definitely minimize her borrowing costs and maximize her flexibility.

For shopping a new car, two financing schemes are given in the question. The two financing companies Auto Boss and Four Wheel Specialists have provided the following options: The sticker price of the car is $18,000. Auto Boss scheme This Company has offered to sell the car for $3,000 down payment and 48 monthly payments of $333.67. The total monthly payments are the product of monthly payment and number of months. The extra amount charged is the difference between total monthly payments and the loan amount. Therefore, the extra amount charged is Four wheel Specialists scheme : This Company has offered to sell the car for $3,500 down payment and 60 monthly payments of $265.02. The total monthly payments are the product of monthly payment and number of months. The extra amount charged is the difference between total monthly payments and the loan amount. The extra amount charged by Four Wheel Specialists is The first option is a better deal , because now in the current period, the down payment is less and by paying an extra amount of only $68.65 every month, the loan is over in 4 years, and we have to pay $1016.16 surplus than pay 901.2 in 5 years.

Brad Stengel takes out an inventory of the consumer debts that he has outstanding so that he can better plan to pay off his debts by considering his take home pay. Using the details of the various debts and the take home pay of Brad Stengel, the inventory of consumer debt for Brad Stengel is prepared as shown below. The format is taken from worksheet 7.1. Name: Brad Stengel dt.: 28 th July 2014 Compute the Debt safety ratio Debt safety ratio is computed as Total monthly payments divided by the monthly take home pay. The debt safety ratio is calculated as: The take home pay per month is $2,500 Substituting the values in the above formula: Hence, the debt safety ratio is This ratio is good since, he can comfortably pay his monthly payment from his take home pay.