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EMI, CAGR & Depreciation · Question 14 of 66

Which of the two car loans costs Mira less in interest, and by about how much?

Question 14

HardOriginal question

Mira wants a ₹5,00,000 car loan for 3 years, repaid in 36 equal monthly instalments. A dealer offers 8% a year at a flat rate; a bank offers 12% a year on the reducing balance, that is 1% a month. (Take (1.01)36=1.4308(1.01)^{36} = 1.4308.)

Which of the two car loans costs Mira less in interest, and by about how much?

Options for question 14

Show the answer and explanation
CorrectNot quiteAnswer D

Correct answer: D

Explanation

  1. Bank: 36×16,606−5,00,000=97,81636 \times 16{,}606 - 5{,}00{,}000 = 97{,}816 of interest. Dealer: ₹1,20,000.

  2. The bank is cheaper by 1,20,000−97,816=22,1841{,}20{,}000 - 97{,}816 = 22{,}184 rupees: a flat rate charges interest on money already repaid.

Worth noting

A flat rate looks lower but is worked out on the whole loan throughout.

Concept
Flat rate against reducing balance
Typical time
150 s
Your time
—
The rule this testsEMI by the flat-rate method
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