Ted borrowed $2,000 for six months at 12.5%. How much did he have to

Question

pay back under an add-on plan?
a. $125
b. $250
c. $2,125
d. $2,057.50

Answer 1

Under an add-on plan, the interest is simply added to the principal amount and then divided into equal payments over the loan term. In this case, the interest is 12.5% of $2,000, which is $250. Adding this to the principal gives a total amount payable of $2,250. Dividing this by the number of payments (which is 6 since it's a 6-month loan) gives a payment amount of $375 per month. Therefore, the answer is b. $250 - this is the total interest payable under the add-on plan.