Compare Monthly Payments and Total Loan Costs for Different Loan Options
Loan Options Comparison
When deciding on a loan, especially for a significant amount like $130,000, it is crucial to compare different options to understand their implications on your finances. Let's compare the monthly payments and total loan costs for two loan options with the same closing costs:
Loan Option 1:
Loan Term: 30 years
APR: 8%
Loan Option 2:
Loan Term: 15 years
APR: 7.5%
Final answer:
The monthly payments and total loan costs for Option 1 and Option 2 can be calculated using the given information. Option 1 has a lower monthly payment but a higher total loan cost compared to Option 2.
Explanation:
To compare the loan options, we can use the loan payment formula, considering a $130,000 loan. For Option 1, a 30-year loan at 8%, the monthly payment (1M 1) is calculated. For Option 2, a 15-year loan at 7.5%, the monthly payment (2M 2) is computed. Comparing these monthly payments provides insights into short-term affordability. However, it's crucial to assess the total loan costs, including the interest paid over the loan term.
Despite Option 2 having a higher monthly payment due to the shorter loan term, it may result in lower total loan costs compared to the extended term of Option 1. Evaluating both monthly affordability and total loan costs is essential for making an informed decision based on your financial goals and capacity
How do the monthly payments and total loan costs compare between the 30-year loan at 8% APR and the 15-year loan at 7.5% APR for a $130,000 loan? The 30-year loan at 8% APR has a lower monthly payment compared to the 15-year loan at 7.5% APR, but it results in a higher total loan cost due to the longer loan term. On the other hand, the 15-year loan with a lower APR may have a higher monthly payment but can save you money in total loan costs over the life of the loan.