Installment Buying and Credit Cards
Simple Finance Charges
 The finance charge is the amount of the purchase in
excess of the selling price.
 Barry wants to purchase a tv for $1540. Since he does
not have the cash up front, he enter into an agreement
to pay $55 a month for 36 months. Find the total cost
and the finance charge for this purchase.
 55*36=1980. therefore, the finance charge would be
then 1980-1540=$440
Monthly Payments
 A light saber is for sale at a price of $1250, but it may be
purchased on an installment plan by paying
$300down, and then paying the balance plus 16%
simple interest in 12 monthly payments. What would
be the amount of each payment?
 Using simple interest formula, I = 950*.16*1=$152. So
950 + 152 = $1102 is the balance. Since there will be 12
payments, each one should be 1102/12=$91.83
 The total cost of the light saber would be the price of
$1250 plus the finance charge of 152, or $1402.
 Ron Weasly buys a Nimbus 2000 for g450 (g-galleons,
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currency in the wizard world) and pays for it over two
years with 11.5% simple interest. What is the monthly
payment.
I=450*.115*2=103.50
Total amount=103.5+450=553.5
553.5/24=23.06
So the monthly payment is g 23.06
Except for the last month, the last month payment is
g23.12
Credit card and Finance Charges
 The finance charge on a credit card is the simple
interest on the average daily balance using a daily
interest rate.
 The billing cycle is the number of days between credit
card statements, and usually corresponds to the
number of days in a specific month, which will be 28,
30 or 31 days.
 How many days are in the billing cycle that runs from
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the June 15 through July 14?
30 days.
If a credit card has a balance of $20 for 21 days and
then a balance of $40 for 9 days, what is the average
daily balance for that 30-day period?
20*21=420 and 40*9=360
420+360=780
ADB: 780/30=$26
ADB- the average daily balance is just that- the average
of the daily balances for all the days in the billing
cycle.
 Daily interest rate: the interest rate stated with a
credit card is always an annual percentage rate (APR).
 Since there are 365 days in a year, the daily interest rate
is the APR/365.
 APR/366
Monthly Finance Charge
 Monthly Finance Charge = (ADB) * (APR/365)*(# Of
Days in Billing Cycle)
 Lets say we have an average daily balance of $456 on a
credit card with an APR of 12.9%, over a billing period
of 31 days. What would be the finance charge be?
 456*(.129/365)*31=$5.00 (to the nearest cent)
 The balance on the Harry’s credit card on May 12, his
billing date, was g378.50. For the period ending June
11, he made the following transactions.
 May 12, Charge : toys, g129.79
 May 15, Payment: g50.00
 May 18, Charge: Clothing, g135.85
 May 29, Charge: Gasoline, g37.63
A. Find the average daily balance for the billing period.
B. Find the finance charge that is due on June 12.
Assume APR of 15.6%
C. Find the balance that is due on June 12.
Dates
# of days
Balance Due
#of Days*Balance
May 12
1
g378.50
g378.50
May13-14
2
g508.29
g1016.58
May 15-17
3
g458.29
g1374.87
May 18-28
11
g594.14
g6535.54
May 29-June 11
14
g631.77
g8844.78
Totals:
31
• The average daily balance us 18150.27/31 = g585.49
• The finance charge is 585.49*(.156/365)*31=g7.76
• The balance due on June 12 is 631.77+7.76=g639.53
g18150.27
 The balance on Smiths Credit card on November 8,
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their billing date, was $812.96. For the period ending
December 7, they made the following transactions.
November 13, charge: toys, $231.10
November 15, Payment: $500
November 29, charge: Clothing, $87.19
Assuming they have an APR of 5.9%, find the balance
that is due on December 8.
Dates
#of days
Balance due
#of days *balance
Nov 8-12
5
$812.96
$4064.80
Nov 13-14
2
$1044.06
$2088.12
Nov 15-28
14
$544.06
$7616.84
Nov29-dec7
9
$631.25
$5681.25
Totals
30
$19,451.01
 The average daily balance is $19451.01/30=$648.37
 That makes the finance charge
648.37*(.059/365)*30=$3.14
 Then, the balance forwarded is $631.25+$3.14=$634.39
HW 3.3 pg 184
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