Question

Lamar is considering two loans.


Loan A
Loan B
Principal
$4,500
$4,300
Interest rate
5%
6%
Time in years
3
3

Which loan will have the lowest total payback?
Loan A will have the lowest total payback because the amount of interest paid is less than the amount of interest paid for loan B.
Loan A will have the lowest total payback because the total of the principal and the interest paid for loan A is less than the same total for loan B.
Loan B will have the lowest total payback because the interest is less than the interest for loan A.
Loan B will have the lowest total payback because the total of the principal and the interest paid for loan B is less than the same total for loan A.

Answer 1

To determine which loan has the lowest total payback, we need to calculate the total payback amount for both Loan A and Loan B. The total payback is the sum of the principal and the interest paid over the loan period.

**Loan A:**
- **Principal:** $4,500
- **Interest Rate:** 5%
- **Time:** 3 years

Interest can be calculated using the formula:
\[
\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}
\]

For Loan A:
\[
\text{Interest} = 4,500 \times 0.05 \times 3 = 4,500 \times 0.15 = 675
\]
Total payback for Loan A:
\[
\text{Total Payback} = \text{Principal} + \text{Interest} = 4,500 + 675 = 5,175
\]

**Loan B:**
- **Principal:** $4,300
- **Interest Rate:** 6%
- **Time:** 3 years

For Loan B:
\[
\text{Interest} = 4,300 \times 0.06 \times 3 = 4,300 \times 0.18 = 774
\]
Total payback for Loan B:
\[
\text{Total Payback} = \text{Principal} + \text{Interest} = 4,300 + 774 = 5,074
\]

**Comparison:**
- Total Payback for Loan A: $5,175
- Total Payback for Loan B: $5,074

**Conclusion:**
Loan B will have the lowest total payback because the total of the principal and the interest paid for Loan B ($5,074) is less than the same total for Loan A ($5,175).

So the correct statement is:
"Loan B will have the lowest total payback because the total of the principal and the interest paid for loan B is less than the same total for loan A."