In terms of the bottom line for your business, what is the difference between taking out a 5-year loan versus a 10-year loan for $10,000, assuming identical annual interest rates?
Shorter loans cost you more overall.
Both loans cost the same overall.
Longer loans cost more overall.
You pay more each month on the longer loan
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The correct answer is: Longer loans cost more overall.
This is because, while a longer loan term (like a 10-year loan as opposed to a 5-year loan) generally results in lower monthly payments, you will pay more in interest over the life of the loan due to the longer period of time that the principal is outstanding. Therefore, the total cost of the loan (principal plus interest) will be higher for the longer term loan.
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3 answers