Question

A veterinary student takes a loan to pay for the last year of school. the loan is $25,000 at 3.25 percent to be paid back over 10 years how much interest will be paid? if the student chose to pay back the loan in 7 years instead. how much interest would be saved?

Answer 1

Answer-

If he had paid the loan in 7 years instead of 10 years, he could have saved $2437.50

Solution-

As we are not provided with the compounding rate, so considering as simple interest with 3.25% annual interest rate.

we know,

$i=\dfrac{P\times R\times t}{100}$

For 10 years,

$i_1=\dfrac{25000\times 3.25\times 10}{100}=8125$

For 7 years,

$i_2=\dfrac{25000\times 3.25\times 7}{100}=5687.50$

The extra interest paid by him is,

$=8125-5687.50=2437.5$

Therefore, if he had paid the loan in 7 years instead of 10 years, he could have saved $2437.50