You Are Presented Two Choices to Borrow Funds for a Significant

question 109

Multiple Choice

You are presented two choices to borrow funds for a significant unexpected expenditure. it will take at least three years to pay off the loan assuming you make more than the minimum payment. Which choice is the least cost alternative in terms of interest paid over the life of the loan?

• A) A credit card with a variable interest rate of 4 % over the prime rate; for info, the latest forecast is for prime to stay below 5% throughout the life of your loan.
• B) An interest only balloon payment loan for 3 years with 10% interest, but your monthly payments would be half of those compared to the credit card.
• C) There is not enough information to make the decision.
• D) Both A and B are about equal since the interest only payment aspect offsets the slightly higher interest rate on the credit card.