Question

Jill has a balance of $5,000 on one credit card with an annual interest rate of 10%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $161.34 per month. On a second credit card, Jill has a balance of $5,000 with an annual interest rate of 5%. To pay off the $5,000 in three years, Jill will have to make a minimum payment of $149.85 per month.

How much more does Jill have to pay when the interest rate changes from 5% to 10% on a $5000 balance?

Answer 1

$413.64

Explanation:

$161.34 - $149.85 =$11.49 more per month

$11.49 x 36 months = $413.64

Answer 2

Given:

First credit card:
P = $5,000
i = 10%
n = 3 years
A = $161.34/month

Second credit card:

P = $5,000
i = 5%
n = 3 years
A = $149.85/month

If the interest rate of the other card will increase from 5% to 10%, she will have to pay an additional of:

$161.34 - $149.85 / month = $13.49 more per month

Therefore, Jill will have to pay $322.68/month instead of $311.19/month with a monthly difference of $13.49 per month, for three years, if the interest rate changes from 5% to 10% on a $5,000 balance.