Question

George and Samantha both applied for a personal loan at Westside Bank. George has a credit score of 650. Samantha has a credit score of 520. The bank approved George’s loan application at 5.6% interest. Samantha was approved for the same loan amount, but, because of her lower credit rating, the interest charged on Samantha’s loan is 3 percentage points higher than the interest rate on George’s loan. What interest rate does Samantha pay to the bank?



A. 8.6%


B. 5.9%


C. 3.0%


D. 2.6%

Answer 1

Option A

Interest rate paid by Samantha to bank is 8.6 %

Solution:

Given that George has a credit score of 650

Samantha has a credit score of 520

The bank approved George’s loan application at 5.6% interest

To find: Interest rate paid by samantha to the bank

From given information in question,

Interest charged on Samantha’s loan is 3 percentage points higher than the interest rate on George’s loan

Thus we get,

Interest charged on Samantha’s loan = 3 percentage points higher than the interest rate on George’s loan

Interest charged on Samantha’s loan = 3 % higher than the interest rate on George’s loan

Interest charged on Samantha’s loan = 3 % + interest rate on George’s loan

Thus substituting the given George’s loan application at 5.6% interest,

Interest charged on Samantha’s loan = 3 % + 5.6 % = 8.6 %

Thus interest rate paid by samantha to bank is 8.6 %