Question

100 POINTS

Compare Loan Terms
So you want to finance a car for $4,840. Let’s say we offer you a 4.5% interest rate on a 2-year loan and 6% on a 5-year loan. Enter this info into the calculator to see your monthly and total cost by loan term.

Financing Amount:


Interest Rate on 2-Year Loan:


Interest Rate on 5-Year Loan:

Answer 1

To compare the loan terms, calculate the monthly and total cost for each loan. The 2-year loan has a higher monthly payment but a lower total cost compared to the 5-year loan. The choice depends on your budget and financial goals.

Step-by-step explanation:

To compare the loan terms, let's calculate the monthly and total cost for each loan. For the 2-year loan:

Financing Amount: $4,840

Interest Rate: 4.5% per year

Using the formula to calculate monthly payments on a loan, the monthly payment for the 2-year loan is $209.95. The total cost of the loan is $5,038.80.

For the 5-year loan:

Financing Amount: $4,840

Interest Rate: 6% per year

Again, using the formula to calculate monthly payments on a loan, the monthly payment for the 5-year loan is $93.45. The total cost of the loan is $5,606.95.

Comparing the two loans, the 2-year loan has a higher monthly payment but a lower total cost, while the 5-year loan has a lower monthly payment but a higher total cost. The choice between the two would depend on your budget and financial goals.