Question

Aaron needs a $7,500 loan in order to buy a car. Which loan option would allow him to pay the least amount of interest?


An 18-month loan with a 3.85% annual simple interest rate



A 36-month loan with a 3.75% annual simple interest rate



A 30-month loan with a 2.8% annual simple interest rate

Answer 1

The total interest paid on each loan option would be:

1. Option 1 - 18-month loan: Total interest = $7,500 * 0.0385 * 1.5 = $433.13
2. Option 2 - 36-month loan: Total interest = $7,500 * 0.0375 * 3 = $843.75
3. Option 3 - 30-month loan: Total interest = $7,500 * 0.028 * 2.5 = $525.00

Therefore, the loan option that would allow Aaron to pay the least amount of interest is the 18-month loan with a 3.85% annual simple interest rate.