Question

Sharon is considering the purchase of a car. After making the down payment, she will finance $15,500.00. Sharon is offered three maturities. On a four-year loan, Sharon will pay $371.17 per month. On a five-year loan, Sharon's monthly payments will be $306.99. On a six-year loan, they will be $264.26. Sharon rejects the four-year loan, as it is not within her budget. How much interest will Sharon pay over the life of the loan on the five-year loan? How much interest will Sharon pay over the life of the loan on the six-year loan? Which should she choose if she bases her decision solely on total interest paid?

The amount of interest Sharon will pay over the life of the loan on the five-year loan is $____. (Round to the nearest cent.)

The amount of interest Sharon will pay over the life of the loan on the six-year loan is $_____. (Round to the nearest cent.)

Which should she choose if she bases her decision solely on total interest paid? (Select the best answer below.)

A) Based solely on total interest paid. Sharon should choose the 5-year loan. She would pay $2,919.40 in interest, which is less than the $3,526.72 she would pay in interest on the 6-year loan.

B) Based solely on total interest paid, Sharon should choose the 6-year loan. She would pay $2,919.40 in interest, which is less than the $3,526.72 she would pay in interest on the 5-year loan.

Answer 1

Total payments over 4 year term=371.17*12*4=17816.16
Interest paid=17816.16-15500=2316.16

Total payments over 5 year term=306.99*12*5=18419.4
Interest paid=18419.4-15500=2919.4

Total payments over 6 year term=264.26*12*6=19026.72
Interest paid=19026.72-15500=3526.72

A) Based solely on total interest paid. Sharon should choose the 5-year loan. She would pay $2,919.40 in interest, which is less than the $3,526.72 she would pay in interest on the 6-year loan.