Your banker quotes you two different loan payments on a $12,000 car loan, one calling for 36 monthly payments and the other calling for 24 monthly payments. Both loans have the same APR and EAR. She then tells you that the shorter loan is a better deal because the total payments you would make over the life of the loan would be lower. What is she ignoring?
A) The payment would be lower on the 24 month loan.
B) The 24 month contract will actually cost you more in total payments, not less.
C) The interest you could earn by saving the difference between the two loan payments.
D) The fact that you must make 12 more payments on the longer term loan.
E) The APR and EAR for the two loans are irrelevant.
Correct Answer:
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