Texas A&M University (TAMU) MATH140 Mathematics for Business and Social Sciences Final Practice Exam

Having a high outstanding principal on a loan can significantly affect the total interest payments over the life of the loan. When the principal amount is high, the interest is calculated based on this amount. Since interest is often calculated as a percentage of the principal, a larger outstanding principal means that the interest accrued will also be greater.

For example, if you have a loan of $10,000 versus a loan of $5,000, even at the same interest rate, the interest charged on the $10,000 loan will be higher. Consequently, with a high outstanding principal, the total amount of interest paid over time increases, which can substantially affect the overall cost of borrowing.

Thus, the correct answer highlights that a high outstanding principal can lead to higher total interest payments, impacting the financial burden of the loan over its duration. Other options do not accurately reflect the relationship between the outstanding principal and interest payments.