A loan for $5,000 at 5% for 3.5 years

The 5% represented in loan represent the amount of interest you have to pay per year. Eventhough in this question the duration do not reach 4 years, you still need to pay the interest amount for the 6 months after the 3 years.

In this case, the total interest that you must pay back would be

$ 5,000 x 5/100 x 3.5

= 250 x 3.5

= $875

I know 5% of 5,000 is 250