When considering loan terms, the duration of the loan has a significant impact on both the monthly payments and the overall amount repaid over the life of the loan. Here's a step-by-step analysis:
1. Monthly Payments:
- For a given loan amount and interest rate, a shorter loan term results in higher monthly payments because the principal amount has to be repaid within a shorter duration.
- Conversely, a longer loan term results in lower monthly payments as the repayment period is extended, spreading the payments over a longer duration.
2. Total Amount Repaid:
- While a shorter loan term results in higher monthly payments, it generally leads to a lower overall repayment amount because the interest accrues over a shorter period.
- A longer loan term, although it has lower monthly payments, typically results in a higher total repayment amount due to the longer period over which interest is calculated and added to the principal.
In this case, Luz is considering a 24-month loan versus a 48-month loan. Based on what we discussed:
- The 24-month loan will have higher monthly payments.
- The 48-month loan will have lower monthly payments.
- However, because the 48-month loan extends over a longer period, the total interest paid will be higher, leading to a higher overall repayment amount.
Therefore, the most accurate statement is:
"The 48-month loan will have the lowest monthly payment but the highest overall amount to repay over the life of the loan."
Thus, the correct answer is:
O The 48-month loan will have the lowest monthly payment but the highest overall amount to repay over the life of the loan.
