Use the following chart to explain how the loan repayment period affects the total cost of the loan. loan repayment period loan 1 loan 2 principal $5,000 $5,000 interest rate 6.47 percent 6.47 percent monthly payment $98 $57 loan repayment period 5 years 10 years total cost of the loan $5,866 $6,804

The loan repayment period directly affects the total costs of the loan. The longer of a loan period equals a higher cost of loan.

Explanation: In this example, all of the values are the same except the repayment time frame for the loan. By making a smaller payment each month and spreading the payments out over 10 years instead of 5, the costs of borrowing money is $938 more. It is always better to try to pay off loans as quickly as possible because this will decrease the amount of interest that is paid.