Exploring Loan Options: Which One is More Cost-Effective?

Question:

You are offered two loans. One has an APR of 4% and a principal of $25,000, while the other has an APR of 3% and a principal of $30,000. Which loan will have the lowest interest charged in the first year?

Answer:

A. The second loan will have the lower interest since it will charge $900 in interest the first year, while the first loan will charge $1000 in the first year.

If someone offered two loans, the lowest interest charged in the first year is the second loan. The first loan with an APR of 4% and a principal of $25,000 will accrue $1000 in interest, while the second loan with an APR of 3% and a principal of $30,000 will only incur $900 in interest for the first year.

What is a loan?

A loan is any sum of money, a piece of property, or other tangible item that is given to another party with the understanding that it will be paid back, plus interest, at a later date. Loans are provided by financial institutions.

The first loan has an APR of 4% and a principal of $25,000, resulting in $1000 interest charged in the first year ($25,000 x 4%/100).

The second loan has an APR of 3% and a principal of $30,000, leading to $900 interest charged in the first year ($30,000 x 3%/100).

Therefore, the second loan will have the lowest interest charged in the first year, as mentioned above.