Which of these statements is true? (1 point)
• There is no reason to pay off a loan early.
• The more you owe, the higher your interest payment will be.
• You can save money by making the smallest down payment the lender will allow.
• When shopping for a loan, you need to compare only APRs.
The statement "The more you owe, the higher your interest payment will be" is true.
To determine which statement is true, let's analyze each one:
1. "There is no reason to pay off a loan early."
To evaluate this statement, we need to understand the concept of interest. When you borrow money, the lender charges you interest for the privilege of using their funds. By paying off a loan early, you can potentially save on interest payments over the long term. Therefore, this statement is false.
2. "The more you owe, the higher your interest payment will be."
This statement is generally true since interest payments are calculated based on the amount of money you borrow. The higher the loan amount, the larger the interest payment will be. However, the interest rate also plays a role in determining the final interest payment. Hence, this statement is partially true.
3. "You can save money by making the smallest down payment the lender will allow."
When obtaining a loan, making a down payment upfront reduces the amount you need to borrow. This, in turn, can lower your overall interest payments over the life of the loan. While it may seem appealing to make the smallest down payment possible, this also means borrowing more money, resulting in higher interest payments. So, this statement is false.
4. "When shopping for a loan, you need to compare only APRs."
APR stands for Annual Percentage Rate and represents the annual cost of borrowing money, including both interest and certain fees. While APR is an essential factor when comparing loans, it is not the sole aspect to consider. Other factors like the loan term, any prepayment penalties, or additional fees should also be evaluated to make an informed decision. Therefore, this statement is false.
In conclusion, out of the given statements, only statement number 2, "The more you owe, the higher your interest payment will be," is partially true.