In this problem we will consider the effect of the interest rate on loan payments. Zoe has saved enough for the down payment on a new car. She will borrow $29,685 to pay for the remainder of the car. She plans to make monthly payments for the next 3 years to pay off the loan. Her bank offers her a loan at 6% annual interest. The car dealer offers her a slightly higher rate of 7.2%. Zoe is not sure it is worth the hassle of going to the bank when she could simply complete the transaction at the dealer.

a. How much more will Zoe pay over the life of the loan if she takes the 7.2% loan?

b. How would you convince Zoe which loan is the better option?