Loans
When you get a loan from a bank you are charged interest on the amount you borrow.
You can usually choose how long it takes to pay the money back but the longer you take the more interest will be added to the loan amount.
Example
Jen wants to take out a loan of \(\pounds3\,000\). She asks her bank how much her monthly payments will be.
The bank gives her the following table.
| Number of months to pay back | Amount per month |
| 12 | \(\pounds266\) |
| 24 | \(\pounds140\) |
| 36 | \(\pounds99\) |
| 48 | \(\pounds78\) |
| 60 | \(\pounds66\) |
| Number of months to pay back | 12 |
|---|---|
| Amount per month | \(\pounds266\) |
| Number of months to pay back | 24 |
|---|---|
| Amount per month | \(\pounds140\) |
| Number of months to pay back | 36 |
|---|---|
| Amount per month | \(\pounds99\) |
| Number of months to pay back | 48 |
|---|---|
| Amount per month | \(\pounds78\) |
| Number of months to pay back | 60 |
|---|---|
| Amount per month | \(\pounds66\) |
Question
How much would Jen have to pay back in total for each monthly payback option in this table?
| Number of months to pay back | Amount per month | Amount paid back |
| 12 | \(\pounds266\) | \(12 \times 266 = \pounds3\,192\) |
| 24 | \(\pounds140\) | \(24 \times 140 = \pounds3\,360\) |
| 36 | \(\pounds99\) | \(36 \times 99 = \pounds3\,564\) |
| 48 | \(\pounds78\) | \(48 \times 78 = \pounds3\,744\) |
| 60 | \(\pounds66\) | \(60 \times 66 = \pounds3\,960\) |
| Number of months to pay back | 12 |
|---|---|
| Amount per month | \(\pounds266\) |
| Amount paid back | \(12 \times 266 = \pounds3\,192\) |
| Number of months to pay back | 24 |
|---|---|
| Amount per month | \(\pounds140\) |
| Amount paid back | \(24 \times 140 = \pounds3\,360\) |
| Number of months to pay back | 36 |
|---|---|
| Amount per month | \(\pounds99\) |
| Amount paid back | \(36 \times 99 = \pounds3\,564\) |
| Number of months to pay back | 48 |
|---|---|
| Amount per month | \(\pounds78\) |
| Amount paid back | \(48 \times 78 = \pounds3\,744\) |
| Number of months to pay back | 60 |
|---|---|
| Amount per month | \(\pounds66\) |
| Amount paid back | \(60 \times 66 = \pounds3\,960\) |
Notice that the longer Jen takes to pay back the loan the more interest has been added to the \(\pounds3\,000\) she borrowed.
She must consider how much she can afford to pay back each month and then choose the monthly payments which best suit her financial situation.
She should also be aware that different banks and building societies offer different loan rates so she should shop around for the deal which suits her best.