You are offered three different loans all at the same interest rate, but they all different payment frequencies. The payments are due monthly, quarterly and semi-monthly respectively. Which loan has the lowest annual cost?

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Originally Posted by R8dergurl

You are offered three different loans all at the same interest rate, but they all different payment frequencies. The payments are due monthly, quarterly and semi-monthly respectively. Which loan has the lowest annual cost?

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The monthly because the principal amount is reduced monthly. The lower the principal the lower the interest charges. The loan is amortized at a faster rate by paying monthly. To balance the cost out over the same term you will incur a higher payment otherwise it will take longer to pay the loan off and thus the loan will cost more.

Except that semi-monthly means twice a month, which is more often than monthly. :-) (Though I do have to wonder if that was a typo, because it just seems out of place or something.)