Question

Ella is buying a motorcycle and is taking out a loan in the amount of $15,000. Her choices for the loan are a 36-month loan at 6.50% annual simple interest and a 48-month loan at 7.50% annual simple interest. What is the difference in the amount of interest Ella would have to pay for these two loans?

Answer 1

Answer:1,575

Explanation:

Apply the formula I = Prt, where I is interest, P is principle, r is rate, and t is time.

I = 15,000(

6.5

100

)(

36

12

) = 15,000(0.065)(3) = 2,925

I = 15,000(

7.5

100

)(

48

12

) = 15,000(0.075)(4) = 4,500

Therefore, 4,500 − 2,925 = 1,575

Answer 2

Explanation:

The formula for simple interest is expressed as

I = PRT/100

Where

P represents the principal

R represents interest rate

T represents time in years

I = interest after t years

Considering the 36-month loan,

T = 36 months = 36/12 = 3 years

P = $15000

R = 6.5%

Therefore

I = (15000 × 6.5 × 3)/100

I = 292500/100

I = $2925

Considering the 48-month loan loan,

T = 48 months = 48/12 = 4 years

P = $15000

R = 7.5%

Therefore

I = (15000 × 7.5 × 4)/100

I = 450000/100

I = $4500

The difference in the amount of interest Ella would have to pay for these two loans is

4500 - 2925 = $1575