The loan option that will allow the customer to pay the least amount of interest is 4-year loan with a 5.2% annual simple interest rate.
Calculation of loan with least simple interest rate
Formula for simple interest = P ×T × R/100
P = Principal amount borrowed ($12,000)
T = Time in various years given
R = Rate of simple interest generated
To determine which loan option that would allow the customer to pay the least amount of interest, the simple interest of each option is calculated below
Simple interest of a 4 years loan = 12000×4×5.2/100
= $2,496
Simple interest of a 5 years loan= 12000×5×4.2/100
= $2,520
Simple interest of a 6 years loan= 12000×6×4.7/100
= $3,384
Simple interest of a 5 years loan= 12000×3×8.4/100
= $ 18,144
Therefore, the loan option that will allow the customer to pay the least amount of interest is 4-year loan with a 5.2% annual simple interest rate.
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