To find the lower cost of credit, we need to calculate the total amount paid for each payment plan and compare them.
In plan 1, the monthly payment is $361.91, and the repayment period is 10 years. So the total amount paid can be calculated as:
Total amount paid = Monthly payment * Number of payments
Total amount paid = $361.91 * (10 years * 12 months/year)
Total amount paid = $361.91 * 120
Total amount paid = $43,429.2
In plan 2, the monthly payment is $473.49, and the repayment period is 7 years. So the total amount paid can be calculated as:
Total amount paid = Monthly payment * Number of payments
Total amount paid = $473.49 * (7 years * 12 months/year)
Total amount paid = $473.49 * 84
Total amount paid = $39,795.16
Therefore, plan 2 offers the student a lower cost of credit. The lower credit cost is $39,795.16.
a student with a $33,500 student loan is offered two payment plans to repay their debt.
plan 1: monthly payment of $361.91 over a period of 10 years, 2)8,) corresponds to a compound interest rate of 5.4% compounded monthly.
plan 2: monthly payment of $473.49 over a period of 7 years, which corresponds to a compound interest rate of 5.0% compounded monthly.
determine which plan offers the student a lower cost of credit. find the lower credit cost. round the answer to two decimal places as needed.
1 answer