Answer:
Step-by-step explanation:
Who is paying is not as important as the interest rate. Either way, a lower rate will benefit the person who has the bill.
Answer:
Interest to be paid will keep on reducing each month due to reduction of the principal amount.As a result the net interest outgo will be higher for a borrower who carries balance for the whole year compared to one who pays offs monthly.
Step-by-step explanation:
The interest outgo for any balance depends on 3 things:
In case of borrower who carries the balance, the annual interest is:
[tex]\[\frac{Principal\times 1 \times Rate}{100}\][/tex]
On the other hand, a borrower who pays the balance monthly,will have a reducing balance on which interest in computed each month. For example,
Month 1 : Interest is computed on entire amount P
Month 2: Interest is computed on [tex]\[Principal - \frac{Principal}{12}\][/tex]
Month 3: Interest is computed on [tex]\[Principal-\frac{2 \times Principal}{12}\][/tex]
and so on.
So the interest to be paid will keep on reducing each month due to reduction of the principal amount.
As a result the overall interest outgo at the end of the year will be less compared to the borrower who carries the balance.
