BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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for principal but not interest
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for interest but not principal
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for both principal and interest
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for interest only
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Detailed explanation-1: -The answer is: b. for both principal and interest. As a borrower you have to pay the lender back both the amount that you borrowed (principal) as well as the cost of that money (interest).
Detailed explanation-2: -Interest-When you take out a personal loan, you agree to repay your debt with interest, which is essentially the lender’s “charge” for allowing you to use their money, and repay it over time. You’ll pay a monthly interest charge in addition to the portion of your payment that goes toward reducing the principal.
Detailed explanation-3: -The principal is the original loan amount not including any interest. For example, let’s suppose you purchase a $350, 000 home and put down $50, 000 in cash. That means you’re borrowing $300, 000 of principal from the lender, which you’ll need to pay back over the length of the loan.
Detailed explanation-4: -Principal + Interest payments In a principal + interest loan, the principal (original amount borrowed) is divided into equal monthly amounts, and the interest (fee charged for borrowing) is calculated on the outstanding principal balance each month.
Detailed explanation-5: -Principal is the money that you originally agreed to pay back. Interest is the cost of borrowing the principal.