Question

Bryce wants to renovate his kitchen. The construction estimate is $28,400. He can finance through his local bank or directly through the construction company.

The bank (loan A) offers a maximum 6 year loan at 8% annual interest, resulting in monthly payments of $497.94.

The construction company (loan B) offers a maximum 10 year loan at 5.5% annual interest, resulting in monthly payments of $308.21.

Which loan requires Bryce to pay less, and by how much?

First, calculate the total payback for each loan.

Answer 1

Bank A:-

Monthly Payment = $497.94

No of payments = 6 years *12 months per year = 72 monthly payments

Total payback in case of Bank A= Monthly Payment*No of payments

= $ 497.94*72

= $ 35,851.68

Bank B:-

Monthly Payment = $308.21

No of payments = 10 years *12 months per year = 120 monthly payments

Total payback in case of Bank A= Monthly Payment*No of payments

= $ 308.21*120

= $ 36,985.2

As Total Payback in acse of Bank A is less than Bank B. Thus, Bank A requires Bryce to pay less.

by how much = $ 36,985.2 - $ 35,851.68

= $ 1133.52

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