Lenders require borrowers to make interest payments as part of the price associated with borrowing.
At the end of the borrowing period, the loan has been repaid. The purpose of this assignment is to explore the effects of different interest rates that borrowers might be charged by lenders, on the dollar size of monthly loan payments. The effect of different interest rates on monthly payments may change the attractiveness of any purchase to be financed by borrowing. As monthly payments rise, other things being equal, households, firms and governments may be less willing to buy consumer durable goods and start new investment projects to be financed by loans. These activities become more desirable as the interest rates charged by lenders are lowered.