Question

melvin took out a loan at a 5.6% APR, compounded monthly. to buy a clothes dryer, and he is making monthly payments to pay off the loan. which of these interest rates would have allowed melvin to pay off the loan faster?

A. 6.4%, compounded monthly
B. 6.8%, compounded monthly
C. 6.0%, compounded monthly
D. 5.2%, compounded monthly

Answer 1

To determine which of these interest rates would allow Melvin to pay off the loan faster, we need to understand that a lower interest rate generally leads to lower monthly payments and shorter loan durations, all else being equal. However, higher rates can alternatively lead to faster payoff in scenarios where different payments or amortization strategies might apply.

In this case, the key to pay off the loan faster lies in choosing a lower interest rate, as long as the loan amount and payment schedule are the same.

Here's a quick consideration of the options:

- **A. 6.4%, compounded monthly** - Higher than 5.6%
- **B. 6.8%, compounded monthly** - Higher than 5.6%
- **C. 6.0%, compounded monthly** - Higher than 5.6%
- **D. 5.2%, compounded monthly** - Lower than 5.6%

Among the options, **D. 5.2%, compounded monthly** represents a lower interest rate than Melvin’s current 5.6%, which would typically allow him to pay less interest over time, thus helping to pay off the loan faster compared to the current loan at 5.6%.

So, the answer is **D. 5.2%, compounded monthly** would allow Melvin to pay off the loan faster.