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 the lower cost of credit, we need to calculate the total amount paid for each payment plan.
For Plan 1, the monthly payment is $361.91 over 10 years, which is a total of 10 years * 12 months/year = 120 payments. The total amount paid for Plan 1 is 120 payments * $361.91/month = $43,429.20.
For Plan 2, the monthly payment is $473.49 over 7 years, which is a total of 7 years * 12 months/year = 84 payments. The total amount paid for Plan 2 is 84 payments * $473.49/month = $39,805.16.
Therefore, Plan 2 offers the lower cost of credit, which is $39,805.16.