Another type of sales promotion for vehicles is to advertise the choice between a "Cash Purchase Price" or "0% Purchase Financing." The tiny print at the bottom of a GM Canada full-page advertisement included the statement: "
TheGMACpurchasefinanceratesarenotavailablewithandarenotcalculatedonthe'CashPurchasePrice'shown.
ThedifferencebetweenthepricefortheGMACpurchasefinanceofferandthe'CashPurchasePrice'offerisdeemedunderprovinciallawstobeacostoffinancing." In other words, there are two prices for a vehicle-a lower price if you pay cash and a higher price if you want to take advantage of the "0% financing." An additional disconcerting aspect of this type of promotion is that the higher price for the 0% financing is usually not quoted in the advertisement. Rather, it must be negotiated with the dealer.
Suppose the Cash Purchase Price of a car is $23,498, and the price that qualifies for full 0% financing (with 48 monthly payments) turns out to be $26,198. What effective interest rate will you be paying for the "0% financing?" Round to the nearest 0.01%