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15 October, 23:24

Use the following chart to explain how the loan repayment period affects the total cost of the loan.

Loan Repayment Period

Loan 1 Loan 2

Principal $5,000 $5,000

Interest Rate 6.47 percent 6.47 percent

Monthly Payment $98 $57

Loan Repayment Period 5 years 10 years

Total cost of the loan $5,866 $6,804

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  1. 16 October, 01:59
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    Let's do 2 things:

    1.) The total cost of loan 1 is $98*5*12 = $5,866, and loan 2 is $57*10*12 = $6804. The number 12 is the number of months in a year.

    2.) We see that paying loan1 off in 5 years will cost the borrower $866, while paying off in 10 years will cost the borrower $1,804. So by adding additional 5 years to the second loan the borrower pays additional $938 ($1804-$866) in interest.
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