Consider the following two loans for P 0

To determine which loan results in paying the least interest, we need to calculate the total amount paid over the life of each loan and subtract the principal ($10,000) from that to find the total interest paid.

Loan A (5-year loan at 7%):

• Monthly payment = $198.01
• Number of months = 5 years × 12 months = 60 months

The total amount paid over 60 months is:

$198.01 \times 60 = 11,880.60$

Interest paid on Loan A:

$11,880.60 - 10,000 = 1,880.60$

Loan B (3-year loan at 5%):

• Monthly payment = $299.71
• Number of months = 3 years × 12 months = 36 months

The total amount paid over 36 months is:

$299.71 \times 36 = 10,789.56$

Interest paid on Loan B:

$10,789.56 - 10,000 = 789.56$

Conclusion:

• Interest on Loan A: $1,880.60
• Interest on Loan B: $789.56

Loan B results in paying the least interest.

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Do you need more details or have any questions?

Here are 5 related questions for further exploration:

1. How do different compounding periods affect loan interest?
2. How can you calculate the total interest paid on a loan with a variable interest rate?
3. What strategies can reduce the overall interest on a long-term loan?
4. How does loan amortization work for fixed-rate loans?
5. What is the impact of making extra payments on a loan's interest?

Tip: Always compare the total repayment amount when deciding between loans, as shorter-term loans typically result in less interest.