Final answer:
When the interest rate increases from 6.5% to 7.9%, the payment amount for a fixed-rate loan will not change, but the total cost of the loan will increase.
Step-by-step explanation:
When the interest rate increases from 6.5% to 7.9%, the effect on the amount of the payment and the total cost of the loan depends on the type of loan and its terms. Let's assume we are talking about a fixed-rate loan with a fixed monthly payment. In this case, the payment amount will not change because it is determined by the loan's terms and not by the interest rate. However, the total cost of the loan will increase because the higher interest rate will result in more interest being paid over the life of the loan.
For example, let's say you borrow $10,000 for a 5-year fixed-rate loan at 6.5% interest. Your monthly payment would be $193.33. Over the life of the loan, you would pay a total of $11,599.80 (including principal and interest). Now, if the interest rate increases to 7.9%, your monthly payment will still be $193.33, but the total cost of the loan will increase to $11,599.88.
Therefore, the answer is option c: No change in payment but increases total cost.