Credit Card Calculations

17 de Sep de 2020
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Credit Card Calculations

• 1. Credit Cards Slide 1 Definitions: Credit: is a type of loan in which a borrower receives something of value and agrees to pay the lender for it later. Finance Charge: the total amount of interest paid to borrow a sum of money. Cash Advance: a withdrawal of cash from an ATM or bank teller charged to a credit card; interest is usually calculated from the day of the withdrawal.
• 2. Slide 2 Example 1: Calculate the interest due on an unpaid balance of \$1724.29 at a rate of 19.50% for 17 days. Formula: I = PrtClick to see the answer. Answer: The interest due is \$15.66 I = (1724.29) x (0.195) x (17 ÷ 365) I = 15.66 Interest is 19.50% per year There are 365 days per year
• 3. Slide 3 Example 2: Calculate the interest due on an unpaid balance of \$2121.99 at a rate of 18% for 16 months. Formula: I = PrtClick to see the answer. Answer: The interest due is \$509.28 I = (2121.99) x (0.18) x (16 ÷ 12) I = 509.28 Interest is 18% per year There are 12 months per year
• 4. Slide 4 Example 3: Susan’s credit card company charges 24% per annum, counting each day that an amount is owed. Her only purchase was an item for \$617.25. She did not pay on the due date, March 10. How much will she owe on the next statement date, April 2, if she doesn’t make any other purchases? Calculate # of days that interest is chargedClick to see the answer. Answer: Susan will owe \$626.18 on the next statement date. March 10 to March 31 = 22 days April 1 to April 2 = 2 days Total 24 days Calculate Interest I = Prt Interest is 24% per year There are 365 days per year I = (617.25) x (0.24) x (22 ÷ 365) I = 8.93 Total Due = 617.25 + 8.93 = 626.18
• 5. Slide 5 Example 4: Arnold used his credit card to make the following purchases during the month. He does not have to pay interest on purchases during the month, only on outstanding balances. His credit card company charges 18.5% per annum. Add the total purchasesClick to see the answer. Total = 104.32 + 201.54 + 65.42 + 154.21 + 72.24 + 781.32 Total = 1379.05 (0.05) x (1379.05) = 68.95 Minimum payment = \$68.95 (since it is greater than \$10.00. Date Item Amount Nov 2 Groceries \$104.32 Nov 7 Shoes \$201.54 Nov 12 Dinner \$65.42 Nov 16 Groceries \$154.21 Nov 21 Gas \$72.24 Nov 23 Plane Ticket \$781.32 (a) What is her balance due on the statement date, November 28? (b) If the minimum payment is 5% or \$10.00, whichever is greater, what is Arnold’s minimum payment? 5% of the balanceClick to see the answer.
• 6. Slide 6 Example 4 (continued) (c) If he only pays the minimum and doesn’t use the card between then and the next statement date, how much will he owe on his December 28 statement? From the previous slide we know that the interest rate is 18.5% We calculated that: November charges = \$1379.05 and the Minimum payment = \$68.95 Calculate # of days that interest is chargedClick to see the answer. Nov 28 to Nov 30 = 3 days December 1 to December 28 = 28 days Total 31 days Calculate Interest I = Prt I = (1310.10) x (0.185) x (31 ÷ 365) I = 20.58 Total Owing = 1310.10 + 20.58 = \$1330.68 Calculate new amount owing Balance = 1379.05 – 68.95 = 1310.10
• 7. Slide 7 Example 5: Thomas is charged 17.90% per annum on his credit card balances. He used his card, which had no previous balance, to make a purchase of \$2201.90. He did not use the card again before his statement dated April 29. • On May 2, Thomas paid the minimum payment of 5% • On May 6, Thomas took a cash advance of \$96.25 on his credit card. If he makes no other transactions, how much will he owe on his May 29 statement? Calculate the minimum paymentClick to see the answer. 2201.90 x 0.05 = \$110.10 Calculate unpaid balance as of May 2 I = (2091.80) x (0.179) x (30 ÷ 365) I = 30.77 Total Amount Owing= 2091.80 + 30.77 + 1.13 = \$2123.70 2201.90 – \$110.10 = \$2091.80 Interest Calculations: • Calculate interest for unpaid balance I = Prt Calculate interest for unpaid balance # of days = 1 day (April 30) + 29 days (May 1- 29) = 30 days • Calculate interest for cash advance I = (96.25) x (0.179) x (24 ÷ 365) I = 1.13 I = Prt Calculate interest for cash advance # of days = 24 days (May 6 – 29)