Donavan borrowed $10,000 for three years at 10% annual interest. The payment he owes for the second year of the loan is $1,000. Donavan has a(n) _____ loan.

Question

Quizplus · Accepted Answer

An interest-only loan requires the borrower to pay only the interest on the principal balance, with the principal balance unchanged. In this case, with a 10% annual interest rate on a $10,000 loan, the annual interest payment would indeed be $1,000, indicating an interest-only loan.

Donavan Borrowed $10,000 for Three Years at 10% Annual Interest