Hudson hunts for a loan
Use the Cost of a Loan calculator to evaluate Hudson’s three options. Watch him decide, then vote on whether you think he’s right.
To borrow $10,000 to buy a motor scooter at the lowest total cost of credit, while keeping his monthly payments under $400.
I’m going to get a loan at 12.25% interest with a 24-month term.
I’m going to get a loan at 14.50% interest with a 36-month term.
I’m going to get a loan at 16.75% interest with a 48-month term.
Is this the best choice for Hudson?
You're right! Your friend made the best choice.
Actually, there is a better choice.
You're right! There is a better choice.
Actually, your friend made the best choice.
Hudson hunts for a loan … continued
Between these three alternatives, Hudson’s best choice is to get the loan with the 36-month term.
Why is this the best choice?
With the 24-month term his monthly payment will be higher, and with the 48-month term his cost of interest will be higher.
If you have a choice between three different lengths of loan terms, it’s generally a smart idea to pick the middle one.
With the 24-month term his monthly payments will be too high, and the 36-month term will cost less in interest than the 48-month.
He’ll probably only own the scooter for about three years, so a 36-month term makes sense.
Right! Also, notice that lenders will usually offer you a lower interest rate for a shorter term loan.
Not quite. Remember: the longer the term, the lower the monthly payments, but the higher the amount of interest over the life of the loan.
Watch Hudson Decide
Click the Next button to continue.
Remember: Annual Percentage Rate (APR) is a measurement you can use to compare the cost of different loans. The lower the APR, the lower the total cost of the loan.