Personal F. Flashcards
How to calculate Finance charge
= Interest amount + Service Charge (Chapter 7)
Interest amount + Service Charge
Dave borrowed $1,150 for one year and paid $58 in interest. The bank charged him a service charge of $4. What is the finance charge on this loan?
$58 + $4 = $62
Annual Percentage rate
(APR) = (2 × n × I) / [P × (N + 1)]
Dave borrowed $1,400 on January 1, 2017. The bank charged him a service charge of $11.50 and interest was $87.90. If Dave paid the $1,400 in 12 equal monthly payments, what was the APR?
1) - (2 × 12 × $99.40) / [$1,400 × (12 + 1)]
2) - $2,385.60 / $18,200
3) - 0.131, or 13.1
Cash Advance
Rate × Principal borrowed
Intrest
P × r × T
Total Amount
Principal borrowed + Cash advance fee + Interest
Sidney took a cash advance of $600 by using checks linked to her credit card account. The bank charges a cash advance fee of 2 percent on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived.
Cash advance fee
Rate × Principal borrowed
0.02 × $600
$12
Interest
P × r × T
$600 × 0.18 × (1 / 12)
$9
Total repayment
Principal borrowed + Cash advance fee + Interest
$600 + 12 + 9
$621
Determining Interest Cost Using the Simple Interest Formula
Includes:
Interest = (P x r x T)
Total amount due = Loan + interest
What are the interest cost and the total amount due on a six-month loan of $1,800 at 13.4 percent simple annual interest?
Interest
P × r × T
=$1,800 × 0.134 × (6 / 12)
=$120.60
Total amount due
Principal borrowed + Interest
=$1,800 + 120.60
=$1,920.60
Calculating the Total Cost of a Purchase, the Monthly Payment, and an APR
After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $13,900 price, but financing through the dealer is no bargain. He has $2,500 cash for a down payment, so he needs a loan of $11,400. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $11,400 for a period of four years at an add-on interest rate of 10 percent.
(a)
Interest
P × r × T
= $11,400 × 0.10 × 4
= $4,560
(b)
Total cost
Down payment + Total interest + Principal
= $2,500 + 4,560 + 11,400 =
$18,460
(c)
Monthly payment
(Principal borrowed + Total interest) / Total number of payments
= ($11,400 + 4,560) / 48
= $333
(d)
APR =
(2 × n × I) / [P × (N + 1)]
=(2 × 12 × $4,560) / [$11,400 × (48 + 1)]
=$109,440 / $558,600
=0.1959, or 19.59%
Calculating Interest Using the Simple Interest Formula
Rebecca wants to buy a new saddle for her horse. The one she wants usually costs $750, but this week it is on sale for $640. She does not have $640, but she could buy it with $60 down and pay the rest in 6 months with 8 percent interest. Does Rebecca save any money buying the saddle this way?
Interest = P × r × T
= ($640 – 60) × 0.08 × (6 / 12)
= $23.20
Total cost = Down payment + Principal borrowed + Interest
= $60 + 580 + 23.20
= $663.20
Amount saved = Regular price – Total cost
= $750 – 663.20
= $86.80
Which of the following is not true regarding a tax refund loan?
It is an inexpensive way to borrow money.
A “float” period can be defined as:
a certain number of days during which no interest is charged.
Which one of these is the fairest method of calculating finance charges on a credit card?
Average daily balance method
When more than one payment is made on a simple interest loan, the method of computing interest is known as the:
declining balance method.
Gary Simpson notices that his neighbor has a brand new Ford F150 truck parked in the driveway. Even though his current car is fine, Gary decides that he needs a new car and goes out and purchases a Tundra with a six-year loan. Which one of the following best explains Gary’s spending, which can lead to overindebtedness?
Keeping up with the Joneses
If you default on your automobile loan, most automobile financing agreements:
permit your creditor to repossess your car at any time without notice.
In addition to the Consumer Credit Counseling Service (CCCS), the following entities also provide counseling services:
Universities
Credit unions
Military bases
State and federal housing authorities
The CCCS aids families by:
setting up a realistic budget for them.
According to Fair Isaac Corporation (FICO), a personal bankruptcy can cause an immediate drop in your credit score of how many points?
260
