If you can afford to pay $900 per month, and you have $50,000 in debt in an inte

Question

If you can afford to pay $900 per month, and you have $50,000 in debt in an interest-only loan which charges an annual interest rate of 9% (compounded monthly), it will take you 6 years to pay off your debt. If you owe $150,000 rather than $50,000 (and the loan type, interest rate and how much you can afford to pay each month remain the same), then to pay off your debt it will take you

a) Less than 18 years.

b) Exactly 18 years.

c) More than 18 years, but it will be paid off.

d) The loan will never be paid off.

Explanation / Answer

Option c is correct.

It will take more than 18 years, but it will be paid off.

The required formula is : P = (r*A)/[1-(1+r)-n]

where n is number of years

P is monthly repayment

A is loan amount

r is annual interest

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