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Mr Kunal Sharma wants to buy a motorbike which is priced at ₹45,500. The bike is also available at ₹25,000 down payment and monthly installments of ₹1000 per month for 2 years or ₹18,000 down payment and monthly installment of ₹1000 per month for 3 years. Mr Kunal has with him only ₹12,000. He wants to borrow the balance money of the down payment from a private lender whose terms are : if ₹6,000 is borrowed for 12 months, the rate of interest is 20%. The interest will be calculated on the whole amountfor the whole year, even though the repayment has to be done in 12 equal monthly installments starting from the first month itself. Thus he will have to repay an amount of ₹600 per month for 12 months to repay ₹6000 (Principal) + ₹1200 (Interest @ 20%). If ₹10,000 upwards is borrowed for one year, the rate of interest is 30% and is calculated in exactly the same manner as above.
If Kunal can spare only a total of ₹2000 to be paid to the bike dealer and the money lender from his monthly earnings starting from the first month onwards, which scheme should be chosen?
He can only spend 2000 for each month. In both the schemes he has to pay 1,000 to the dealer.
In he goes with the first scheme, his monthly payment to the lender will be $$\frac{\left(1.3\cdot(25000-12000)\right)}{12}\ =\frac{1.3\cdot13000}{12}=\frac{16900}{12}=1408.33$$.
He has to pay 1408.33+1000 = 2408.33 every month. But this is more than 2000. So, this is not feasible for him.
In he goes with the second scheme, his monthly payment to the lender will be $$\frac{\left(1.2\cdot6000\right)}{12}\ =\frac{7200}{12}=600$$
He has to pay 1000+600 = 1600 every month through the second scheme.
So, answer is 1000 for 3 years.
