Consumer credit - Assignment Example

Consumer Credit Common 72 of the Unit 5: Consumer Credit You must show your work on all problems. You may type your answer right into this document.Total points for project: 45 points. All Projects are due by Tuesday at 11:59 PM ET of the assigned Unit.Part I. Basic Computations1. The Morrison family bought a car for $24,000 which was financed at $600 per month for 40 months. The down payment was $5000.a. What is the Installment Price? (5 Points)Answer: Installment price is defined as the total of the installments and the down payment.

Total Install payment is obtained by multiplying the number of monthly payments by the amount paid each month.$600×40= $24000Add down payment,$5000+$24000=$29000Installment Price=$29000b. What is the financial charge and amount financed? (5 Points)Answer: Finance charge is obtained by subtracting the retail price from the total installment price,Finance charge= Installment price - Retail price =$29000-$24000 =$5000Amount financed is the principal or purchase rate added to any other costs like the fees, insurance charges and subtracting the down payment.

Amount financed=Retail price-Down payment =$24000-$5000 =$19000 2. Jason’s credit card’s beginning unpaid balance for August is $3,000. During the August billing cycle he made a payment of $250 and used card to purchase $75 worth of groceries. Credit card charges 23% annual percentage rate and uses the unpaid balance method.a. What is the finance charge at the end of August? (5 Points)Answer: Finance Charge is calculated by multiplying the previous month’s balance and periodic rate.

Periodic rate=APR/12=23%/12=1.92%Finance Charge=Previous month’s balance × Periodic rate =$3000×1.92% =$3000×0.0192 =$57.6 b. What is the new balance at the end of August? (5 Points)Answer: New balance is calculated by adding previous balance, finance charge and any purchase and subtracting the Payment.New balance at the end of August=Pre balance+ fin charge +Purchase-Payment =$3000+$57.6+$75-$250 =$2882.60 Part II. Case Study 1. Ling has received been approved for a Visa credit card with a $2000 credit limit, however he has not charged that much since opening the account.

On April 24, he discovers a monthly statement from March that had accidentally slid down between his desk and the wall. Because he has been busy at work, he has not had time to carefully review his monthly statements, but is spending the weekend catching up on paying bills and organizing his desk. He is particularly interested in how much he still owes the credit card company. He reviews the statement and discovers there is a page missing – the one with the unpaid balance. He can see that his beginning balance for March (March 1 through March 31) was $800 and that he paid $280 on March 12, charged purchases of $150 on March 5, $100 on March 20, and $50 on March 30.

Ling remembers that the Annual Percentage Rate (APR) on the credit card is 16% of the unpaid balance and interest is charged using the average daily balance method, including current purchases. a. (5 points) Find the unpaid balance for the March statement (before interest was charged).b. Answer: Unpaid balance is calculated by adding the beginning balance, purchases and deducting the payments made.Unpaid balance for the March statement (before interest was charged)=$800+$150+$100+$50-$280=$820c.

(5 points) Find the average daily balance for the month of March (assume 31 days): d. Answer: Average daily balance is calculated by including the outstanding balance, new purchases and deducting payments and credits on each day in the billing cycle, we need to divide by number of days in the billing cycle.Beginning balance was carried till March 5th, $800×4daysPurchase made on March 5th increased the balance, 950×7daysPayment made on March 12th, so balance reduced to $670×8daysPurchase made on March 20th ($100), $770×10 daysPurchase made on March 30th ($50), $820×2daysAverage Daily balance= ($800×4+$950×$7days+$670×8days+$770×10days+$820×2days)/31 = ($3200+$6650+$5360+$7700+$1640)/31 = $24550/31 =$791.93e. (5 points) Calculate how much interest Ling must pay in addition to the minimum payment. f. Answer: Interest rate is 16%Interest Ling must pay in addition to the minimum payment= (Average daily balance×16%)/12=$791.

93×16/1200=$12670.88/1200=$10.56 d. (10 points) Research some of the guidelines for obtaining and using a credit card for personal purchases. Do you think that Ling is using his credit card wisely? RequirementsWrite your essay in this document – do not save it in a separate file. You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure. This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sourcesYour answer must be between 150-250 words (about 1 page of text)You must cite at least one source (book, website, periodical) using APA format.

Do not use unreliable sources such as Wikipedia, and Yahoo! Answers. Answer: Using Credit Card for personal PurchaseCredit card is considered to be useful. It is one of the important sources to build the credit. It has to be used in a responsible way. This helps the person to benefit. Motivating FactorsWhen we consider the usage of credit card it is essential to know the reason and how to use it.From the author’s point of view, the five factors are named as “Satisfying needs in case of insufficient income”, “Convenience in case of cashless case”, “Socialization and modernization”, “Easiness and safety in comparison with carrying cash” and “Shopping via telephone and inter-net”.

(Okan Veli ùafakli, 2007).This states that the credit card can be the right source to use. It enables the person to utilize optimally.Advantages of its usageCredit cards can be a convenient means of payment, a useful tool for learning financial responsibility, a resource in case of emergencies, a means to establishing a good credit history and a way to gain greater access to credit in the future. If credit cards are mismanaged or misused, however, the disadvantages can result in severe financial consequences.

(Louisiana State University, 2003).Therefore we need to keep track on a regular basis and maintain good credit history. Ling’s way of using credit cardLing has used the credit card wisely. He made the payment on time and as it is a revolving credit, it is good to charge the card and simultaneously make payments. This can have good impact on the credit history. It is a good practice to keep the balance less than the credit limit and this can help them to use it when needed.It is important to keep track of the transactions.

If the statement is misplaced then it is recommended to go online to have a clear idea of the new balance, the payment due date and so forth. He can call the customer care to find the balance.ReferencesFrances C. Lawrence, Rebecca C. Christofferson, Susan E. Nester,E. Barry Moser, Jeanette A. Tucker and Angela C. Lyons, “ Credit Card Usage of College Students: Evidence from Louisiana State University”, Sheet # 107,September 2003, 5-28Veli ùafakli, Okan, “Motivating Factors of Credit Card Usage and ownership-Evidence from Northern Cyprus”, Volume 4, Issue 4, 2007.