EXAMPLE 2 Simple Interest on a Student Loan

Let’s suppose that you have exhausted the amount that you can borrow under federal loan programs and need a private direct student loan for $10,000. The lowest fixed interest rate from PNC Bank, Pittsburgh, Pennsylvania, in July 201 5 was 6.49%. There is an interest-only repayment option, under which you make monthly interest payments while you are in school and pay toward the principal only after graduation. Under this plan, PNC earns simple interest from you while you are in school.

How much monthly interest would you pay for such a $10,000 loan? The principal is , the annual interest rate is per year, and the number of years is year. The interest for one month would be

(Actually, the interest rate might not be 6.49% but could be as much as 12.99%, since it would depend on the creditworthiness of you and any cosigner.)