Select the statement that is true about the relationship between the interest rate, the principal, the loan repayment period, and the total cost of the loan.

AThe shorter the loan repayment period, the higher the total cost of the loan.
BThe higher the principal the interest rate, the longer the loan repayment period.
CThe longer the loan repayment period, the higher the total cost of the loan.
DThe higher the interest rate, the longer the loan repayment period.

Question

16-05-2016
Business

Answered

Select the statement that is true about the relationship between the interest rate, the principal, the loan repayment period, and the total cost of the loan.

AThe shorter the loan repayment period, the higher the total cost of the loan.
BThe higher the principal the interest rate, the longer the loan repayment period.
CThe longer the loan repayment period, the higher the total cost of the loan.
DThe higher the interest rate, the longer the loan repayment period.

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Answer: C. The longer the loan repayment period, the higher the total cost of the loan. This statement is true because of the relationship between the interest rate, the principal, the loan repayment period and the total cost of the loan. When you have a long term loan, you are ultimately paying interest over a longer period than if you had a short term loan. Due to the length of the loan, the overall amount paid on the loan is much higher. The longer the loan, the longer interest is accuring and being paid on it.