If a company repays \$15,000 of principal annually on a \$150,000 loan with a 12% interest rate, how does this affect the interest expense in the third year?

Interest expense decreases because the principal outstanding is reduced.

Interest expense increases because the loan term is reduced by payments.

Interest expense remains the same as the first year regardless of payments.

Interest expense is unaffected by principal repayments throughout the loan term.