Question 2 • 2025-2026 GSP Mathematical Reasoning for Decision Making
Ed needs to take out a loan for $7,000 to purchase a car. His bank has offered him a loan at 10.0% interest, compounded monthly, for 36 months or 10.5% interest, compounded monthly, for 24 months. Ed’s goal is to save as much money as possible by the time he pays off the loan. Which of the following statements best describes what Ed should be thinking?
Answer
A
Since the monthly payment for the 36 month loan is lower, this loan will save more.
B
Since the monthly payment for the 24 month loan is lower, this loan will save more.
C
Since the finance charge for the 36 month loan is lower, this loan will save more.
D
Since the finance charge for the 24 month loan is lower, this loan will save more.
Explanation
Compare the total amount Ed would repay, not just the monthly payment. Using the loan payment formula, the 36-month loan has payments of about $226, for a total near $8,130 and a finance charge of about $1,130. The 24-month loan has payments of about $325, for a total near $7,790 and a finance charge of about $790. So the 24-month loan has the lower finance charge and saves more overall, even though its monthly payment is higher.
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