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Andrew Hall is a fisherman who has a fleet of boats that are used for his day-to-day fishing business.
Andrew Hall is a fisherman who has a fleet of boats that are used for his day-to-day fishing business. Apart from his livelihood, Andrew enjoys fishing as a hobby and plans to buy a motor boat for recreational purposes. He has researched the current market prices and found his preferred model will cost him around $82,500. He expects to finance the boat through a bank loan. The following three banks have offered him the required amount under different terms and conditions:
Option 1 - CommBank offers the loan with $225 weekly repayments over 9 years with the payments occurring at the beginning of each week.
Option 2 - PackWest Bank offers the loan with repayments of $495 at the beginning of each fortnight over 8 years. In addition, this bank charges an upfront loan initiation fee of $850.
Option 3 - NZN Bank offers the loan with repayments of $765 at the end of each month over 12 years with a loan establishment fee of $250 payable upon acceptance of the loan.
As Andrew has become confused as to which finance alternative is best, given the different terms and conditions of each financier, he has sought your assistance and advice.
a) On what financial basis should Andrew seek to differentiate and select between the different financiers?
b) With the assistance of a financial calculator and your previous discussion in part a) of this question, advise Andrew as to the preferred finance alternative.
