Question

Devon is considering taking out a $7,000 loan. He went to two banks. Stevenson Trust Company offered him an 8-year loan with an interest rate of 8.6%. First National Bank offered him a 5-year loan with an interest rate of 10%. Which loan will have the lower interest over its lifetime?

1) Stevenson Trust Company
2) First National Bank

Answer 1

To determine which loan will have the lower interest over its lifetime, we compare the total interest for each loan. The First National Bank loan has a lower interest than the Stevenson Trust Company loan.

Step-by-step explanation:

To determine which loan will have the lower interest over its lifetime, we need to calculate the total amount of interest for each loan. For Stevenson Trust Company, the 8-year loan with an interest rate of 8.6%, we can use the formula:

Total Interest = Principal * Interest Rate * Time

So for a $7,000 loan over 8 years, the total interest would be $7,000 * 0.086 * 8 = $4,768. For First National Bank, the 5-year loan with an interest rate of 10%, the total interest would be $7,000 * 0.1 * 5 = $3,500.

Therefore, the First National Bank loan will have the lower interest over its lifetime.