Phase 4 Discussion Board - Essay Example

Phase 4 Discussion Board Open/Closed End Credit  Credit card companies try to attract new clientele by offering special introductory (or teaser) rates to new customers. For example, the Visa Student Card offers an interest rate of 0% on all purchases and balance transfers for six months. After six months, the rate increases to an annual interest rate of 10.8%. If, however, the customer is late on a payment or exceeds the credit limit, the interest rate jumps to the default rate of 24.8%. You are shopping around for credit cards and are thinking about switching to the Visa Student Card.

Your current credit card has an annual interest rate of 16.5%, and you usually have a large outstanding balance. 1. Calculate the interest charge on a $5,000 balance with your current 16.5% annual interest rate. The simple interest formula is given by: Interest = Principal × Rate  ×  Time  I = PRTWhere, Interest, I is the total amount of interest paidPrincipal, P is the total amount borrowed or lentRate, R is the annual interest rate expressed in decimalTime, T is the period of loan in years.

After six months, interest is charged, therefore, taking time period equal to six months.P = $5,000, R = 16.5% = 0.165, and T = 0.5 yearInterest Charged, I = PRT = 5000 × 0.165 × 0.5 = $412.50After six months, the interest charged on a $5,000 balance with my current 16.5% annual interest rate will be $412.50.2. Calculate the interest charge on a $5,000 balance with the Visa Student Card’s annual interest rate of 10.8%. P = $5,000, R = 10.8% = 0.108, and T = 0.5 yearInterest Charged, I = PRT = 5000 × 0.108 × 0.5 = $270.

00After six months, the interest charged on a $5,000 balance with the Visa Student Card’s annual interest rate of 10.8% will be $270.3. After calculating both interest charges, would you switch to the Visa Student Card? Explain.Yes, I would switch to the Visa Student Card. This is because the interest charged using the Visa Student Card of $270 is lower compared to the interest charged using my existing credit card of $412.50. Most important, I would switch to any credit card that offers lower interest rate on my purchases after six months taking in account that the credit cards offers an interest rate of 0% on all purchases and balance transfers for six months.

In case of Open-End Credit, a borrower can continue to borrow (purchase) and pay in various amounts. In case of Closed-End Credit, the lender tells the borrower how much they can borrow and a fee schedule is set up, which the borrower pays until the debt is paid off. In general, Open-End Credit is for small purchases and Closed-End Credit is for bigger purchase. Credit card purchases are an example of Open-End Credit and a Car loan taken is an example of Closed-End Credit.Simple Interest Many large appliance stores offer simple interest loans to their customers.

For example, suppose a customer is interested in purchasing a $1,400.00 refrigerator at Myer Appliances. The customer is unable to pay the total amount at the time of purchase, so Myer’s lets the customer make a down payment of $140 and then 12 monthly payments of $120.75. 1. Research the selling price of a large appliance that you would like to purchase. Suppose that you are unable to pay the total amount for your appliance at the time of purchase, so you take out a simple interest loan.

The store will let you make a 10% down payment and then make 12 equal monthly payments for the remaining balance at a simple interest rate of 15%. I want to purchase a washing machine. The model I selected for the purchase is “LG Ventless Deluxe Washer Dryer Combo with Portability Kit”, which cost around $1,429.00 at www.amazon.com. Cost of Appliance (LG Washing Machine) = $1,429.002. Find the 10% down payment on your large appliance. Amount of down payment is 10% of $1,429.00. Therefore, Down Payment = 0.

10 × 1429.00 = $142.903. What is the total amount of interest paid on the remaining balance?  Remaining Balance = 1429.00 – 142.90 = $1,286.10The amount left (remaining balance) to pay is $1,286.10, which is principle.P = $1,286.90, I = 15% = 0.15 and T = 1 yearTotal Interest, I = PRT = 1286.10 × 0.15 × 1 = 192.915 ≈ $192.92The total amount of interest paid on the remaining balance will be $192.92.4. How much will your monthly payments be? The 12 equal monthly payments will be sum of the remaining balance and the total amount of interest divided by the 12.

Therefore,Monthly Payment = (Remaining Balance + Interest)/12 = (1286.10 + 192.92)/12 = $123.25My monthly payments will be around $123.25.