Which of these loans would cost a business the least if the business were borrowing $10,000?
A. • a loan with an interest rate of 6 percent and no fees
B. • a loan with an interest rate of 3 percent and $500 in fees
C. • a loan with an interest rate of 2.5 percent and $200 in fees
D. • a loan with an interest rate of 2.5 percent and $1500 in fees
To determine which loan would cost the business the least when borrowing $10,000, we need to calculate the total amount repaid for each option.
A. Loan with an interest rate of 6 percent and no fees:
Total amount repaid = $10,000 + (6% of $10,000) = $10,600
B. Loan with an interest rate of 3 percent and $500 in fees:
Total amount repaid = $10,000 + $500 + (3% of $10,000) = $10,800
C. Loan with an interest rate of 2.5 percent and $200 in fees:
Total amount repaid = $10,000 + $200 + (2.5% of $10,000) = $10,450
D. Loan with an interest rate of 2.5 percent and $1500 in fees:
Total amount repaid = $10,000 + $1500 + (2.5% of $10,000) = $11,250
Therefore, option C would cost the business the least when borrowing $10,000.