Question

Michelle wants to borrow $2000. She has two options. Option 1 - she can borrow $2000 for 3 years at 7%. Option 2 - she can borrow $2000 for / years at 11%. Which loan will cost more?

Answer 1

Option 1

Explanation:

To find which will cost more, we need to know the amount of interest that will be on each loan

To get this, we use the general formula

I = PRT/100

Where P is the principal I.e $2,000 in both cases, R is the interest rate and T is the time.

We proceed as follows. For the first option

I = (2000 * 7 * 3)/100 = $420

For the second option

I = (2,000 * 1 * 12)/100 = $240

Option 1 is definitely more costly