The 5% represented in loan represent the amount of interest you have to pay per year. Eventhough in this question the duration do not reach 4 years, you still need to pay the interest amount for the 6 months after the 3 years.
In this case, the total interest that you must pay back would be
$ 5,000 x 5/100 x 3.5
= 250 x 3.5
= $875