While shopping for a car loan, you get the following offers: Solid Savings & Loan is willing to loan you $25,000 at 13% interest for 5 years. Fifth Federal Bank & Trust will loan you the $25,000 at 7% for 6 years. Both require monthly payments. You can afford $500 per month. Which loan, if either, can you take
A)Both
B) Fifth Federal Bank & Trust
C) Neither
D) Solid Savings & Loan

Question

While shopping for a car loan, you get the following offers: Solid Savings & Loan is willing to loan you $25,000 at 13% interest for 5 years. Fifth Federal Bank & Trust will loan you the $25,000 at 7% for 6 years. Both require monthly payments. You can afford $500 per month. Which loan, if either, can you take   
A)Both
B) Fifth Federal Bank & Trust
C) Neither
D) Solid Savings & Loan

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the total amount paid for each loan.

For Solid Savings & Loan:

- Interest = 13/100 * $25,000 * 5 = $16,250 
- Total amount paid = $25,000 + $16,250 = $41,250

For Fifth Federal Bank & Trust:

- Interest = 7/100 * $25,000 * 6 = $10,500 
- Total amount paid = $25,000 + $10,500 = $35,500

Since the monthly payment is capped at $500, it is not possible to take the Solid Savings & Loan loan as the monthly payment would be $687.50 which is beyond our limit.

On the other hand, we can take the Fifth Federal Bank & Trust loan as the monthly payment would be $522.22 which is within our limit.

Therefore, the best choice is to take the loan from Fifth Federal Bank & Trust.

While Shopping for a Car Loan, You Get the Following