Question

From the statements below, identify the way or ways in which making only minimum monthly payments on a long-term credit purchase can be a disadvantage.

I. It is illegal to make only the minimum payments for more than one year.
II. Repeatedly making minimum payments harms your credit score.
III. The total cost is higher if the length of the debt is longer.
a. I and II
b. II only
c. I and III
d. II and III

Answer 1

ANSWER D

Step-by-step explanation:

The EMI reducing-balance method is calculated using the formula shown below, in which P is the principal amount borrowed, I is the annual interest rate, r is the periodic monthly interest rate, n is the total number of monthly payments, and t is the number of months in a year. So if (P x I) x ((1 + r)n)/ (t x ((1 + r)n)- 1) times 2 equalls II III

Answer 2

Option "D" is the correct answer to the following statement.

Step-by-step explanation:

In the process of EMI based purchase or loan, higher you pay the higher times you paid.

In the EMI process, if we make more payment or installment we have to pay more interest, it is a huge disadvantage of EMI based Loan.

Similarly, if we regularly pay a low payment every time this payment method will harm our credit-ability score.

So, Option "D" is the correct answer.