Question

A friend claims to have found a really great deal at a local loan agency without a street address: The agency claims that its rates are so low you can borrow $10,000 with a term of three years for a monthly payment of $200. Is this too good to be true? Be sure to explain your answer.

Answer 1

With a payment of $200 monthly for 3 years, to find the total amount paid you just need to multiply this value by the total of months. Every year has 12 months, then, 3 years have 36 months.

`3*12=36`

Multiplying $200 by 36 we get

`200*36=7200`

Paying $200 monthly for 3 years, you would pay only $7200, and this is less than the amount borrowed. This is indeed "too good to be true".