Question

Fabian is taking out a loan in the amount of $10,000. His choices for the loan are a 4-year loan at 4% simple interest and a 6-year loan at 5% simple interest. What is the difference in the amount of interest Fabian would have to pay for each of these two loans?

Answer 1

Explanation:

The formula for determining simple interest is expressed as

I = PRT/100

Where

I represents interest paid on the loan.

P represents the principal or amount taken as loan

R represents interest rate

T represents the duration of the loan in years.

Considering the first choice,

P = $10000

R = 4%

T = 4 years

I = (10000 × 4 × 4)/100 = $1600

Considering the second choice,

P = $10000

R = 5%

T = 6 years

I = (10000 × 5 × 6)/100 = $3000

the difference in the amount of interest that Fabian would have to pay for each of these two loans is

3000 - 1600

= $1400