Final answer:
To decide which loan is better, one must calculate both the monthly payments and the total interest paid over the life of the loan, considering factors such as the APR and the term length.
Step-by-step explanation:
When comparing which option is better between a 5-year loan at 5.7% APR and a 6-year loan at 4.6% APR, several factors must be considered. First, determine the total cost of the loan, which includes the principal borrowed and the total interest paid over the life of the loan. A lower APR may result in lower total interest charges, but a longer term can increase the total amount of interest paid because you're borrowing for a longer period. Additionally, higher monthly payments for the shorter term loan may not be affordable for everyone, despite potentially saving on interest. Therefore, calculating the monthly payments and total interest for each option is necessary to make an informed decision.
Here are a few general points to remember:
- A lower APR usually means less interest paid over the life of the loan, but this is not always the case when loan terms differ.
- The shorter the term of the loan, the less time there is for interest to accrue, but the monthly payments will be higher.
- A financial calculator or amortization table can help in comparing the total interest paid over the life of these two loans.