What is the difference between the vehicle’s purchase price and the total cost of credit?

• A. Purchase price is the amount paid; total cost of credit includes interest and fees over the loan term.
• B. Purchase price includes interest; total cost of credit is the negotiated price.
• C. Purchase price is always higher than the total cost of credit.
• D. Purchase price and total cost of credit are the same.

Answer: (A)

The main idea is that the purchase price is the price of the car itself, while the total cost of credit covers what you pay because you’re financing the purchase. When you borrow money, the lender adds interest and possibly fees over the loan term. The total cost of credit is the sum of all payments you make for the loan, including those interest and financing charges. So even though the car has a set price, the amount you end up paying over time is higher due to financing. For example, a $25,000 car financed with $4,000 in interest and fees would have a total cost of credit around $29,000, while the purchase price remains $25,000.