Instructions

Part I: Student loan options

Alexa Rose is a sophomore at State College and is running out of money. Wanting to continue her education, Alexa is considering a student loan. Explain her options. How can she minimize her borrowing costs and maximize her flexibility?

Part II: Comparing payments and APRs of financing alternatives

Because of a job change, Seth Armstrong has just relocated to the southeastern United States. He sold his furniture before he moved, so hes now shopping for new furnishings. At a local furniture store, hes found an assortment of couches, chairs, tables, and beds that he thinks would look great in his new two-bedroom apartment; the total cost for everything is $6,400. Because of moving costs, Seth is a bit short of cash right now, so hes decided to take out an installment loan for $6,400 to pay for the furniture. The furniture store offers to lend him the money for 48 months at an add-on interest rate of 6.5 percent. The credit union at Seths firm also offers to lend him the moneytheyll give him the loan at an interest rate of 6 percent simple, but only for a term of 24 months.

Compute the monthly payments for both of the loan offers.

Determine the APR for both loans.

Which is more important: low payments or a low APR? Explain.