Question

Eddie took out a 14-year loan for $72,000 at an APR of 4.7%, compounded monthly, while Lee took out a 14-year loan for $92,000 at an APR of 4.7%, compounded monthly. Who would save more by paying off his loan 6 years early?

A. Lee would save more, since he has $20,000 more in principal.
B. Lee would save more, since he has $20,000 less in principal.
C. Eddie would save more, since he has $20,000 less in principal.
D. Eddie would save more, since he has $20,000 more in principal.

Answer 1

Lee

Explanation:

It is given in the problem that Lee has taken a loan of $ 92,000 while Eddie has taken a loan of only $72,000.

however, the rate of interest and the tenure is the same for both of them. Hence, it is the principle which is going to affect the interest incurred on Lee or Eddie.

As Lee has higher amount of loan , the interest ion him will be high as compared to the Eddie. Thus Lee will save more if both of them pay their debt in 8 years that is 6 years before the due time.

Answer 2

**Eddie: $72000/(14yr*12mo)=428.6$/mo+428.6$*(4.7%)/100%
Eddie pays 428.6$/mo+20.14$/mo. If he pays off his loan 6 years earlier he would save: $20.14*6yr*12mo= $1450.08
**Lee: $92000/(14yr*12mo)=547.62$/mo+547.62$*(4.7%)/100%
Lee pays 547.62$/mo+25.74$/mo. If he pays off his loan 6 years earlier he would save: $25.74*6yr*12mo=$1853.28

So its A. Lee would save more, since he has $20,000 more in principal.