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FIN 101 Lecture Notes - Lecture 5: Annual Percentage Rate, Credit History

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School
Ball State University
Department
Finance
Course
FIN 101
Professor
Olga S Mc Atee

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Document Summary

If you have to have one credit card, pay the balance every month. If you need a big-ticket and expensive thing, save up your money until you can afford to buy it. Buying more than you can actually afford leads to a downward spiral of more and more debt. Buying a ,000 home entertainment system with your credit card. Your card has an annual percentage rate (apr) of 15%. You pay the minimum payment of 2% of your balance. of that goes to interest and only goes to paying for the item. It will take about 7 years and ,000 to pay the credit card purchase. You"ll pay 60% more for the thing you bought than if you paid in cash to begin with. Wait until you can actually afford the item. Only pay for the actual price of the thing you want to buy or else you"re wasting hard earned money.

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Related Questions

Interest rates on credit cards can range between 7% and 36%. Each month, credit card companies calculate the minimum payment of a credit card based on the current Math 104, Spring 2016 2 balance on the card (for instance, some credit cards require you to pay 3% of the current balance each month).

Cara recently made a $800 purchase with her credit card to buy a laptop. Her credit card has a 20% interest rate, compounded monthly. Cara decides she will pay $25 a month (this is bit higher than the minimum payment)

(a) How long will it take Cara to pay off the balance on her credit card? Round your answer to the next month.

(b) Using your answer from (a), approximately how much will she have pay in interest?

(c) How do (a) and (b) change if Cara instead makes monthly payments of $50?

you need a 30 year, fixed rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at an APR of 5.25 percent for this 360 month loan. However, you can afford monthly payments of only $975, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single ballon payment. How large will this ballon payment have to be for you to keep your monthly payments at $975?

You need a 35-year, fixed-rate mortgage to buy a new home for $325,000. Your mortgage bank will lend you the money at a 6.20 percent APR for this 420-month loan. However, you can afford monthly payments of only $1,650, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.

How large will this balloon payment have to be for you to keep your monthly payments at $1,650?