Question

Letitia borrowed 6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank 1,500 plus the annual interest. Which type of loan does she have?

1) Fixed-rate loan
2) Variable-rate loan
3) Installment loan
4) Payday loan

Answer 1

Letitia has an installment loan, as she makes regular payments over a set period that cover both interest and the principal amount.

Step-by-step explanation:

Letitia's loan structure where she repays a fixed amount of $1,500 each year plus the annual interest indicates that she has an installment loan. This is because an installment loan allows the borrower to repay the loan in regular installments over a fixed period until the entire principal and interest are paid off. Each payment includes a portion that covers the interest charge for the period and a portion that reduces the outstanding principal balance, leading to a fully paid-off loan by the end of the term.