Question

3. You purchase a car using a $20,000 loan with a 5% simple interest rate.

(a) How much interest do you pay on your loan if you pay off the loan in 4 years? Show your work.
(b) How much interest do you pay on your loan if you pay off the loan in 2 years? Show your work.
(c) How much interest do you save by paying the loan off in 2 years instead of 4? Show your work. Answer:

Answer 1

a) $4000 (20,000 x .05 = 1000 1000 x 4 = 4000)
b) $2000 (20,000 x .05 = 1000 1000 x 2 = 2000)
c) $2000 (answer to a 4000 answer to b 2000; 4000 - 2000 = 2000)