Question

    A borrower is offered two loan options: • Loan

    A: ₹50 lakh @ 9.5% with 1.5% upfront fee • Loan B: ₹50 lakh @ 10% with no fee Which is cheaper assuming 1-year duration?
    A Loan A Correct Answer Incorrect Answer
    B Loan B Correct Answer Incorrect Answer
    C Both equal Correct Answer Incorrect Answer
    D Depends on repayment frequency Correct Answer Incorrect Answer
    E Loan A if tax deducted Correct Answer Incorrect Answer

    Solution

    Loan A effective cost = 9.5% + 1.5% = 11% (fee capitalized) Loan B = 10% Cheaper: Loan B

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