Question

question 6 of 8
aisha needs a loan to finance her latest startup. she wants a loan with the lowest overall interest costs. she’s considering a 3-year loan with an 8% fixed interest rate or a 5-year loan with a 6% fixed interest rate. why would aisha pick the 3-year loan?
select a response.
○ it has a lower total cost.
○ it has a smaller monthly payment.
○ it has a lower interest rate.
○ it has a higher loan amount.

Explanation:

To determine the correct choice, analyze each option:

1. A shorter loan term (3 years vs 5 years) with a slightly higher rate can result in lower total interest paid over the life of the loan, even with a higher annual rate, because the repayment period is much shorter.
2. A 3-year loan will have a larger monthly payment than a 5-year loan for the same principal, so the "smaller monthly payment" option is incorrect.
3. The 3-year loan has an 8% rate, which is higher than the 5-year's 6%, so the "lower interest rate" option is incorrect.
4. The question does not mention differing loan amounts, so the "higher loan amount" option is irrelevant.

Answer:

It has a lower total cost.