Question

Fill in the blanks to complete the sentence. Jarvis is buying a boat that costs $6,000. He has $500 for a down payment. He is deciding between a 2-year loan and a 3-year loan. Use the rates in the table to determine how much money he will save if he chooses the 2-year loan instead of the 3-year loan. Round to the nearest cent.

Answer 1

By choosing the 2-year loan instead of the 3-year loan with a 5.5% interest rate, Jarvis will save approximately $385. This calculation considers the total cost of each loan, including interest, and demonstrates the financial benefit of opting for a shorter loan term.

Step-by-step explanation:

Certainly! Let's go through the detailed calculation to find the savings when Jarvis chooses the 2-year loan instead of the 3-year loan:

Given:

• Boat cost = $6,000
• Down payment = $500
• Loan amount = $6,000 - $500 = $5,500

Now, let's calculate the interest for each loan term using the given interest rate of 5.5%:

1. 2-Year Loan:

• 
  `Interest = \( \text{Loan Amount} * \text{Interest Rate} * \text{Loan Term} \)`

• 
  `Interest = $5,500 * 0.055 * 2 = $605`

`Total Cost = \( \text{Loan Amount} + \text{Interest} = $5,500 + $605 = $6,105`

2. 3-Year Loan:

• 
  `Interest = \( \text{Loan Amount} * \text{Interest Rate} * \text{Loan Term} \)`
• 
  `Interest = $5,500 * 0.055 * 3 = $990`

`Total Cost = \( \text{Loan Amount} + \text{Interest} = $5,500 + $990 = $6,490`

Now, calculate the savings:

• Savings = Total Cost (3-Year Loan) - Total Cost (2-Year Loan)
• Savings = $6,490 - $6,105 = $385

Therefore, Jarvis will save $385 by choosing the 2-year loan instead of the 3-year loan.

This detailed calculation involves finding the interest for each loan term, determining the total cost for each option, and then finding the difference between the total costs to identify the savings. Understanding these steps provides a clear picture of the financial impact of choosing a shorter loan term with a lower interest rate.