To determine the amount of interest a borrower will pay over the life of Loan 2, we need to follow a step-by-step process:
1. Identify the principal of the loan:
The principal is the initial amount of money borrowed.
In this case, for Loan 2, the principal is [tex]$5,100.00.
2. Identify the monthly payment:
The monthly payment is the amount that the borrower agrees to pay each month.
For Loan 2, the monthly payment is $[/tex]120.00.
3. Identify the duration of the loan:
The duration of the loan is the time span over which the borrower is required to make payments.
For Loan 2, the duration is 48 months.
4. Calculate the total amount paid over the life of the loan:
To find the total amount paid, multiply the monthly payment by the number of months in the loan's duration.
[tex]\[
\text{Total Amount Paid} = \text{Monthly Payment} \times \text{Duration}
\][/tex]
Substituting the given values:
[tex]\[
\text{Total Amount Paid} = \$120.00 \times 48 = \$5,760.00
\][/tex]
5. Calculate the interest paid over the life of the loan:
The interest paid is the difference between the total amount paid and the principal.
[tex]\[
\text{Interest Paid} = \text{Total Amount Paid} - \text{Principal}
\][/tex]
Substituting the given values:
[tex]\[
\text{Interest Paid} = \$5,760.00 - \$5,100.00 = \$660.00
\][/tex]
Thus, the amount of interest a borrower will pay over the life of Loan 2 is $660.00.
