Maya will buy a new pair of skis for $850.00.  She has $400.00 in her savings account.  Her parents will loan her the rest.  Maya decides to borrow all $850.00 from her parents.  Her parents charge her a simple annual interest rate of 5%.  She will pay back the loan in 2 years.  How much more will she pay to repay the loan than if she had borrowed only the amount she needed?    a $440.00  b $450.00  c $495.00  d $980.50

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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.