Wanda took out a personal loan for $16,000 at 9% simple interest.
How much interest will she pay after 5 years?
Suppose she pays off the loan in 3 years instead of 5 years. How much money will she save in interest?
1. Wanda took out a personal loan for $16,000 at 9% simple interest.
a. How much interest will she pay after 5 years?
I - Interest
P - Principal
r - Rate
t - time (in years)
a ) I = Prt = $16,000 * 0.09 * 5 = $7,200. She will pay $7,2000 in five years
b) Assuming the lender agrees to a 3 year time, when a five year was originally scheduled. Some lenders would not agree to this because they make more money with a 5 year loan as oppose to a 3 year loan.
The interest on a 3 year loan is
I = Prt = $16,000 * 0.09 * 3 = $4,320
So the Savings for a 3 year loan as oppose to 5 is $7,200 - $4,320 = $2.880
To find the amount of interest Wanda will pay after 5 years, we can use the formula for simple interest:
Interest = Principal * Rate * Time
In this case, the Principal (P) is $16,000 and the Rate (R) is 9% (or 0.09 when expressed as a decimal), and the Time (T) is 5 years.
So, the formula becomes:
Interest = $16,000 * 0.09 * 5
To calculate the interest, we simple multiply the values:
Interest = $16,000 * 0.09 * 5
= $7,200
Therefore, Wanda will pay $7,200 in interest after 5 years.
Now, let's determine how much money she will save in interest if she pays off the loan in 3 years instead of 5 years.
To calculate the interest after 3 years, we use the same formula, but this time the Time (T) is 3 years:
Interest = $16,000 * 0.09 * 3
= $4,320
Thus, Wanda will save $7,200 - $4,320 = $2,880 in interest if she pays off the loan in 3 years instead of 5 years.