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    R8dergurl's Avatar
    R8dergurl Posts: 2, Reputation: 1
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    #1

    Jun 11, 2008, 01:21 PM
    Cost of a loan
    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?
    askherman's Avatar
    askherman Posts: 3, Reputation: 1
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    #2

    Jun 11, 2008, 08:41 PM
    Quote 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?
    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.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Jun 11, 2008, 09:30 PM
    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.)
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