ECONOMICS
MONEY MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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true
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FALSE
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Either A or B
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None of the above
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Detailed explanation-1: -When you get a loan, there are generally two costs you must pay: fees and interest. Interest is the amount of money a financial institution charges for letting you use its money. The rate of interest can be either fixed or variable. Fixed rate means the interest rate stays the same throughout the term of the loan.
Detailed explanation-2: -The true cost of borrowing money is the amount you are charged on top of the capital amount of the loan; such as the interest rate and additional fees.
Detailed explanation-3: -Interest rate / Annual Percentage Rate (APR) The APR is the amount of annual interest plus fees you’ll pay averaged over the full term of the loan. Focusing on the APR allows you to better compare the cost of borrowing from different lenders, who may all have different fee structures.
Detailed explanation-4: -The total cost of the loan is the amount of money that you borrow plus the interest that you have to pay on that loan. Therefore, cost of borrowing refers to the principal amount of the loan + the interests + the fees that you have to pay for that loan and the total amount equals what is called cost of borrowing.