Question

Question 6 of 10

What is one strategy that can help a borrower reduce the cost of a loan?
A. The borrower can choose a credit card with a low minimum
monthly payment.
OB. The borrower can choose a loan with a compound rather than a
simple interest rate.
C. The borrower can choose a credit card with a high minimum
monthly payment.
D. The borrower can choose a loan with a simple rather than a
compound interest rate.

Answer 1

The strategy that can help a borrower reduce the cost of a loan is to choose a loan with a simple interest rate. Therefore, option D is the correct choice.

In a simple interest loan, the interest is calculated only on the principal amount borrowed, whereas in a compound interest loan, the interest is calculated on the principal amount as well as any accrued interest. Therefore, choosing a loan with a simple interest rate will result in a lower overall cost of borrowing. Additionally, the borrower can also reduce the cost of the loan by paying it off as quickly as possible, making extra payments, or negotiating a lower interest rate with the lender.