If you dont repay a loan, and a lot of time passes, the debt can grow to unmanageable proportions, as happened to an unfortunate borrower in Melbourne.

A grandmother has been forced to put her house up for sale after she ended up owing a massive $83 000 on a $15 000 loan. Andrea lane, 57, borrowed the money in 2002 to pay for her fathers funeral and to buy a new oven for her Clayton home.

But she could not meet the cost of the loan and 18 years later, the amount she owed had grown to $83 000 Andrea said: I borrowed the money when I was grieving for my father. I just signed the papers.

1. Based on original loan of $15,000, calculate the monthly repayments to be repaid over 5 years. Assume an interest rate of 25% p.a.

Andrea can afford to pay $600 per month into the loan, and she has been able to negotiate a new interest rate of 8% p.a.

2. How long would it take Andrea to repay the loan?
3. If she cannot afford to increase her current repayments, and is unable to negotiate a better interest rate, recommend a strategy to reduce the total length of time to repay the loan? Based on this strategy, how much interest would she save?