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Question 5.T-Y-S.C: The higher the FICO score, the lower the interest rate on a ...

The higher the FICO score, the lower the interest rate on a car loan.  For example, the total interest paid on a \$ 20,000 car loan over 3 years will be \$ 2,181 for a FICO score of 660. The total interest on a \$ 20,000 car loan with a FICO score of 760 will be only \$ 1,056. Thus, the higher FICO score results in a total savings of \$ 1,125 (over the life of the loan) or \$ 31.25 per month. If the MARR of the buyer is 1 \% per month, what is the present worth of the savings? Be sure to state your assumptions. (5.3)

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Assume a monthly compounding frequency to match the monthly savings of $31.25:

\begin{aligned}\operatorname{PW}(1 \%) &=\$ 31.25(P / A, 1 \%, 36) \\&=\$ 31.25(30.1075) \\&=\$ 940.86\end{aligned}

This is the amount you would pay now for a 760 FICO loan if your FICO score is 660 .

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