A student is graduating from college in 12 months but will need a loan in the amount of $11,576 for the last two semesters. The student may receive either an unsubsidized Stafford Loan or a PLUS Loan. The terms of each loan are Unsubsidized Stafford Loan: annual interest rate of 3.85%, compounded monthly, and a grace period of six months from time of graduation PLUS loan annual interest rate of 4.15%, compounded monthly, with a balance of $12,065.65 at the time of repayment Which loan wil have a higher balance, and by how much at the time of repayment?

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.