y12essreducingloan

What is a defining characteristic of a reducing balance loan?

• Repayments are only made at the end of the loan term.

• The interest charged remains constant throughout the loan period.

• Regular repayments are made, causing the interest paid to decrease over time.

• It is primarily used for short-term, small personal loans.

If you borrow $10,000 at 10% per annum on a reducing balance loan, how much interest is charged in the first year?

• $100

• $1,000

• $10,000

• $11,000

Following the example where $10,000 is borrowed at 10% p.a., and a $2,000 repayment is made after the first year's interest, what is the new amount owed?

• $11,000

• $9,000

• $8,000

• $10,000

In the second year of the loan, with a starting balance of $9,000 and a 10% p.a. interest rate, how much interest is charged?

• $1,000

• $900

• $790

• $9,900