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, which 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 point)
Plan
offers the lower cost of credit, which is $
.
To determine which plan offers a lower cost of credit, we need to calculate the total amount paid for each plan and compare them.
For Plan 1:
Total amount paid = monthly payment * number of months
= $361.91 * (10 years * 12 months/year)
= $361.91 * 120
= $43,429.20
For Plan 2:
Total amount paid = monthly payment * number of months
= $473.49 * (7 years * 12 months/year)
= $473.49 * 84
= $39,823.16
Therefore, Plan 2 offers the student a lower cost of credit. The lower credit cost is $39,823.16.