Question

select the correct answer.
sabrina plans to apply for a loan that requires a down payment at the end of this year. what will help her reduce the total cost of the loan?
a. reducing the down payment
b. increasing the loan term
c. increasing the loan term and reducing the down payment
d. reducing the loan term and increasing the down payment

Explanation:

Step1: Analyze the effect of down - payment

A larger down - payment means less principal is borrowed. Since interest is calculated on the principal, a smaller principal (due to a larger down - payment) will result in less total interest paid over the life of the loan.

Step2: Analyze the effect of loan term

A shorter loan term means interest is charged for a shorter period. Even if the monthly payment is higher (in some cases), the total interest paid is less because the time - period for which interest accrues is shorter.

Answer:

A. reducing the down payment (Incorrect, reducing down - payment means more principal borrowed, more interest).
B. increasing the loan term (Incorrect, longer loan term means more interest due to longer time of borrowing).
C. increasing the loan term and reducing the down payment (Incorrect, both actions lead to more interest).
D. reducing the loan term and increasing the down payment (Correct, less principal (from higher down - payment) and less time (from shorter loan term) means less total interest).