Which of the following statements is FALSE if you increase your monthly payment above the required loan payment?
A) The extra portion of the payment goes to the principal.
B) You can significantly decrease the number of payments needed to pay off the loan.
C) The extra portion of the payment increases the principal.
D) Besides lowering the principal, you can significantly reduce the number of payments needed to pay off the loan.
Answer: C
Explanation: C) If you increase your monthly payment above the required loan payment, then the additional portion of the payment goes to DECREASING the principal. But the important fact to note is that an extra payment above the required annuity can significantly reduce the number of payments needed to pay off the loan.
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What will be an ideal response?
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