credit and had two options:
-
Use his new bank credit card, which has an interest rate of 14.5% compounding daily (Because the this
credit card is new, he has no outstanding balance from the previous month)
Apply for the store credit card, which offers an immediate rebate of $100 on the price, but has an interest
rate of 19.3%, compounded daily.
As with most credit cards, Leonardo would not pay any interest if he paid off the balance before the due date on
his first statement. However, he cannot afford to do this. Both cards require a minimum monthly payment of 2.1%
on the outstanding balance, but Leonardo is confident that he can make regular payments of $110.
Answer:
assuming 30 day months:
Leonardo can pay up to $110 per month
credit card
daily interest = 14.5% / 360 = 0.040278%
monthly interest = (1 + 0.040278%)³⁰ - 1 = 1.2154%
I prepared an amortization schedule using an excel spreadsheet
It will take Leonardo 29 months to completely pay off his debt. The last payment will only be $37. Leonardo will be able to save $65 on his last payment if he uses his credit card.
store credit
daily interest = 19.3% / 360 = 0.05361%
monthly interest = (1 + 0.05361%)³⁰ - 1 = 1.6209%
principal will be $100 lower, $2,523.95
I prepared an amortization schedule using an excel spreadsheet
It will also take Leonardo 29 months to completely pay off his debt, but the last payment will be $102, which is higher than the $37 that he would need to pay using a credit card.