If Lou makes a $500 payment to the bank for his small business loan, what will be the new loan balance?

If Lou makes a $500 payment to the bank for his small business loan, what will be the new loan balance?

• A. $10,000
• B. $10,500
• C. $9,500
• D. $500

Answer: (C)

When you pay toward a loan, the amount you pay toward the principal reduces the amount you still owe. If the balance before the payment was $10,000, a $500 payment cuts that balance by $500, leaving $9,500 still owed. The other numbers would imply either no change, an increase, or only the payment amount being left, which isn’t how loan balances work. So the new loan balance is $9,500.

When you pay toward a loan, the amount you pay toward the principal reduces the amount you still owe. If the balance before the payment was $10,000, a $500 payment cuts that balance by $500, leaving $9,500 still owed. The other numbers would imply either no change, an increase, or only the payment amount being left, which isn’t how loan balances work. So the new loan balance is $9,500.