Question

Based on the details of each loan, which factor has the greatest impact on reducing the total repayment?

Loan #1: $2,000, 3 years, at 10% → $64.53 monthly payment
●Loan #2: $2,000, 3 years, at 15% → $69.33 monthly payment
●Loan #3: $2,000, 5 years, at 10% → $42.49 monthly payment
A) longer loan period
B) lower interest rate
C) shorter loan period
D) higher interest rate

Answer 1

Given the amount of each loan payment over time and based on interest rate, the greatest impact on reducing the total repayment is 'C' shorter loan period.

Explanation:

Taking into account the amount of the loan is the same for each payment plan, $2000, we then need to look at the total amount that will be paid after all of the payments have been made. For Loan #1, after 3 years (36 months) the total repayment is $2323.08. For Loan #2, after 3 years (36 months) the total repayment is $2495.88. For Loan #3, after 5 years (60 months) the total repayment is $2549.40. The difference between Loan #1 and #2 is $179.80 and the difference between Loan #1 and #3 is $226.32. So, you would save more money be paying off the loan sooner rather than at a lower interest rate.