Assuming all else is equal, which of the following loans is most likely to have the...

Assuming all else is equal, which of the following loans is most likely to have the lowest total interest cost?

Secured non-amortizing loan

Secured amortizing loan

Unsecured amortizing loan

Unsecured non-amortizing loan

Solutions

Expert Solution

Answer: 2^nd option

Secured amortizing loan has the lowest total interest cost.

Since such loan is secured, the rate of interest would be low, making the total interest cost low.

Since amortizing is there, there would be a regular payment of principal and interest. The regular principal payment makes the total interest cost low.

Other options are not correct:

1^st option: since there is non-amortizing system, the whole sum of loan should be paid at maturity, which makes a larger calculation of interest.

3^rd option: since it is unsecured, the rate of interest would be high.

4^th option: since it is non-amortizing, there would be a larger calculation of interest.

ekkarill92 answered 1 year ago

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