Question

Wanda took out a personal loan for $16,000 at 9% simple interest.
How much interest will she pay after 5 years?
Suppose she pays off the loan in 3 years instead of 5 years. How much money will she save in interest?

Answer 1

1. Wanda took out a personal loan for $16,000 at 9% simple interest.
a. How much interest will she pay after 5 years?

Answer 2

I - Interest
P - Principal
r - Rate
t - time (in years)

a ) I = Prt = $16,000 * 0.09 * 5 = $7,200. She will pay $7,2000 in five years

b) Assuming the lender agrees to a 3 year time, when a five year was originally scheduled. Some lenders would not agree to this because they make more money with a 5 year loan as oppose to a 3 year loan.

The interest on a 3 year loan is

I = Prt = $16,000 * 0.09 * 3 = $4,320

So the Savings for a 3 year loan as oppose to 5 is $7,200 - $4,320 = $2.880