Future Business Leaders of America (FBLA) Business Calculations Practice Test

What is the simple calculation used to determine the total payment on a loan?

1. Principal plus interest

2. Many factors such as term length

3. Only the principal

4. Only the interest

The correct answer is: Principal plus interest

The total payment on a loan is computed by adding the principal amount borrowed to the total interest that will accrue over the loan's term. The principal represents the initial amount of money lent, while the interest is the cost of borrowing that money, usually expressed as a percentage of the principal. By summing these two components, you arrive at the total amount that must be repaid by the borrower. This simple formula reflects the basic principles of loans where both the initial sum and the cost of borrowing need to be considered for a complete understanding of repayment obligations. In the context of the other options, while factors like the term length can influence the amount of interest paid over the life of the loan, they don't provide a direct method for calculating the total payment itself. The principal alone represents just the initial loan amount, and interest alone does not account for the full repayment requirement, leaving out the principal that must also be honored. Therefore, the correct approach to determine the total payment on a loan is indeed the sum of principal plus interest.