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
Plan _____ offers the lower cost of credit, which is $______.
To determine which plan offers the student a lower cost of credit, we need to calculate the total amount paid for each plan and compare them.
For Plan 1:
Monthly payment: $361.91
Total number of payments: 10 years * 12 months = 120 payments
Total amount paid: $361.91 * 120 = $43,429.20
For Plan 2:
Monthly payment: $473.49
Total number of payments: 7 years * 12 months = 84 payments
Total amount paid: $473.49 * 84 = $39,763.16
Now we can compare the total amounts paid for each plan. Plan 2 offers the student a lower cost of credit.
Therefore, Plan 2 offers the lower cost of credit, which is $39,763.16.