Question

Penny paid $350 towards her $5,000 federal student loans on August 5. Today is September 5, and she is prepared to pay $150 toward her loans. How much of her payment will go to interest if her APR is 10.5%?

Answer 1

Of Penny's $150 payment, $1.31 will go to interest.

Step-by-step explanation:

To calculate the amount of Penny's payment that will go to interest, we need to first calculate the interest for the first payment. Her APR is 10.5%, so the monthly interest rate is 10.5% divided by 12, or 0.00875. For the first payment, she paid $350, so the amount that went to interest is $350 multiplied by 0.00875, which is $3.06 (rounded to the nearest cent).

Interest payments are the cost of borrowing money. The borrower makes these payments in addition to paying back the principal on a loan. If you lend money with interest, the interest payment is the amount you are paid over and above the principal amount you lent.

For example, a five-year loan of $1,000 with simple interest of 5 percent per year would require $1,250 over the life of the loan ($1,000 principal and $250 in interest). You'd calculate the interest by multiplying the principal, the annual percentage rate (APR) and the length of the loan: $1,000 x 0.05 x 5.

Now, for the second payment of $150, we can calculate the interest in the same way. $150 multiplied by 0.00875 equals $1.31 (rounded to the nearest cent). So, $1.31 will go to interest for the second payment.

Therefore, out of Penny's $150 payment, $1.31 will go to interest.