Question

Kathy borrowed $12,000 at a simple annual interest rate of 6%. She planned to pay off the loan in 10 years but was able to pay it off in 7 years. How much money did Kathy save by paying off the loan early?

A) $2,000
B) $3,000
C) $4,000
D) $1,000

Answer 1

Kathy saved $2,160 by paying off the loan early.

Step-by-step explanation:

To calculate the amount saved by paying off the loan early, we need to find the total interest paid for 10 years and subtract the total interest paid for 7 years.

For a loan of $12,000 with an annual interest rate of 6%, the total interest paid for 10 years would be $12,000 * 0.06 * 10 = $7,200.

The total interest paid for 7 years would be $12,000 * 0.06 * 7 = $5,040.

Therefore, Kathy saved $7,200 - $5,040 = $2,160 by paying off the loan early.