Question

A bank is offering 3 loan options. Which of the following is the best option. Prove your answer.

Option 1: A loan of P50,000 at 8 % simple interest to be paid at the end of 5 years.

Option 2: A loan of P50,000 at 6.5% advance interest to be deducted from the proceeds and to be paid at the end of 5 years.

Option 3: A loan of P50,000 to be paid monthly for 5 years paying P1650 per month.

Answer 1

Evaluation of best loan option among the available three loan options :-

Particulars	Loan option 1	Loan option 2	Loan option 3
Loan amount (P) (a)	50000	50000	50000
Interest	8% simple interest	6.5% advance interest	-
Loan term	5 years	5 years	5 years
Total interest cost (percentage × 5years)	40%	32.5%	-
Interest cost (b)	20000 (50000×40%)	16250 (50000×32.5%)	-
Amount to be repaid in installments (b)	-	-	99000 (1650 × 12 × 5)
Total amount to be paid (a+b)	70000	66250	99000
Priority	2nd	1st	3rd

As per above calculations loan option to is the best loan option among be available three loan options.

These are all the information required to solve the above given question.

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I hope, all the above mentioned information and calculations are useful and helpful to you.

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