Question

Whic of the statement below is FALSE?

Answer 1

Answer:

Reducing principal at a faster pace increases the overall interest paid on a loan.

Explanation:

When a loan is being repaid a repayment schedule is used. Repayment schedule contains proportion of principal and interest to be paid by the borrower.

In a scenario where principal to be paid reduces at a faster rate, the interest must also reduce. Interest is a function of the principal. The higher the remaining principal the higher interest rate and vice versa.

So the statement - Reducing principal at a faster pace increases the overall interest paid on a loan, is false. Rather interest to be paid will reduce.