Question

Candice wants to buy a $2500 scooter with a loan from her local bank. Which loan option would be best for Candice if she wants the lowest interest rate and wants to pay off the scooter within 5 years.
A. Loan option 1 will take less than 4 years to pay off and have an annual interest rate of 15%, and total interest of about $700.
B. Loan option 2 will take 3 years to pay off, at which point she will have paid $1,050 in interest.
C. Loan option 3 will take 7 years to pay off, and the total paid for the scooter will be $3200.
D. Loan option 4 will take 5 years to pay off, and the total paid for the scooter will be $3500.

Answer 1

Answer:

A. Loan option 1 will take less than 4 years to pay off and have an annual interest rate of 15%, and total interest of about $700.

Explanation:

A. option 1 will take around four years and total interest over four years is $700.

Interest cost per year=700/4=$175

B. option 2 will take  three years and total interest over three years is $1050

Interest cost per year=1050/3=$350

C. option will take seven years and total interest over seven years is $700(3200-2500)

interest cost per year=700/7=$100

D. option 4 will take five years and total interest over five years is $1000(3500-2500)

interest cost per year=1000/5=$200

So the Candice will avail A. option 1 which give lowest interest rate and also the payment in option 1 has to be made within 4 years.