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