Question

You purchase a car using a $20,000 loan with a 5% simple interest rate.

Answer 1

Simple Interest = Cost Price + (Interest Percentage of Cost Price × number of years or months you are paying off)

a) SI = $20 000 + (5% of $20 000 × 4)
SI = $20 000 + ($1000 × 4)
SI = $20 000 + $4000 = $24 000

b) SI = $20 000 + (5% of $20 000 × 2)
SI = $20 000 + ($1000 × 2)
SI = $20 000 + $2000 = $22 000

$24 000 - $22 000 = $2000 that you save!