You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on the installment loan will be the:
A) add-on method.
B) double-declining-balance method.
C) discount method.
D) simple interest method.
E) past-due balance method.

Question

Quizplus · Accepted Answer

The add-on method is the most expensive method of calculating the dollar cost of the interest on an installment loan because it includes the interest as part of the principal amount, resulting in the borrower paying interest on the original loan amount as well as the added interest. This results in a higher total cost of the loan compared to other methods.

You Want to Borrow $1,000 at an Interest Rate of 10