The Scooter Purchase Decision
A 19-year-old bakery assistant needs a scooter to travel to work. The cash price is $4,800. She has $1,200 saved and earns $1,450 a month after tax. Her rent is $550 and other living costs are about $600 a month. Dealer hire purchase: 20% deposit, 24 monthly payments of $215, and a $150 document fee. The dealer price includes registration and 12 months of insurance; she would need to pay $420 for insurance in the second year. Credit union loan: 10% deposit, 9% per annum simple interest for 2 years on the amount borrowed, and an $80 processing fee. The credit union requires her to pay registration of $180 and insurance of $420 per year for both years. The credit union takes about 10 working days to approve and release the money; the dealer can hand over the scooter the same day. She starts her new shift next week and has no other transport.
1. Calculate the total two-year cost under each option. Show the deposit, interest or payments, fees and insurance.
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Dealer: deposit = 20% × $4,800 = $960. Payments = 24 × $215 = $5,160. Document fee = $150. Second-year insurance = $420 (first year and registration included). Total = 960 + 5,160 + 150 + 420 = $6,690.
Credit union: deposit = 10% × $4,800 = $480. Amount borrowed = $4,800 − $480 = $4,320. Simple interest = $4,320 × 0.09 × 2 = $777.60. Processing fee = $80. Registration = $180. Insurance = 2 × $420 = $840. Total = 480 + 4,320 + 777.60 + 80 + 180 + 840 = $6,677.60.
The credit union is cheaper by $6,690 − $6,677.60 = $12.40 over two years.
2. Compare the monthly cash outflow and decide which option is more suitable given her income and timing.
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Monthly cash: dealer = $215 for 24 months. Credit union repayment = ($4,320 + $777.60) ÷ 24 = $212.40, plus insurance at about $35 per month if spread, so about $247.40. Her disposable income = $1,450 − $550 − $600 = $300 per month, so both repayments fit, but the credit union leaves less margin.
Upfront cash: dealer = $960 deposit + $150 fee = $1,110; credit union = $480 deposit + $80 fee + $180 registration + $420 first-year insurance = $1,160. She has $1,200, so both are just affordable, but the credit union leaves only $40.
The dealer can hand over the scooter the same day; the credit union takes 10 working days. Because she needs transport next week and the two-year saving is only $12.40, the dealer is the more suitable choice unless she can arrange a lift for two weeks.
3. Identify one non-financial factor and one financial risk that could change your advice.
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Non-financial factor: reliability and timing. If the scooter is essential for keeping the job, a 10-day delay could cost shifts or the job itself, which outweighs $12.40. Financial risk: her income may be variable if her bakery hours change; a fixed 24-month payment and insurance are commitments. A missed payment fee or a rise in insurance could erase the small saving. Also, hire purchase may carry early-settlement or repossession terms that should be checked before signing.