In the loan example, what is the next step after computing total amount paid (monthly payment times number of payments) to find the interest accrued?

In the loan example, what is the next step after computing total amount paid (monthly payment times number of payments) to find the interest accrued?

• A. Subtract principal from the total amount paid
• B. Add principal to the total amount paid
• C. Multiply principal by number of payments
• D. Divide total amount paid by principal

Answer: (B)

When you borrow money, you repay the original amount (the principal) plus interest. After you find the total amount paid, the next step to get the interest accrued is to subtract the principal from that total. The difference is the cost of borrowing—the interest. For example, if the principal is 1,000 and the total paid is 1,200, the interest accrued is 200. Adding the principal would double-count the original loan, multiplying or dividing would not isolate the extra cost, so subtracting the principal from the total amount paid is the correct approach.

When you borrow money, you repay the original amount (the principal) plus interest. After you find the total amount paid, the next step to get the interest accrued is to subtract the principal from that total. The difference is the cost of borrowing—the interest.

For example, if the principal is 1,000 and the total paid is 1,200, the interest accrued is 200. Adding the principal would double-count the original loan, multiplying or dividing would not isolate the extra cost, so subtracting the principal from the total amount paid is the correct approach.