Suppose that over the life of the loan, the total interest expense for a monthly

Question

Suppose that over the life of the loan, the total interest expense for a monthly loan is $7,000, while the total interest payment for an annual loan is $8,000. Which of the below statements is FALSE? Choose one answer. A. The difference reflects the reduction of the principal each month versus the annual reduction of the principal B. The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher. C. Reducing principal at a faster pace reduces the overall interest paid on a loan. D. The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is lower.

Explanation / Answer

D. The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is lower.

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