Question

Sarah's credit card account has an APR of 18%. Her previous balance was $300 and she made a payment of $100 on the account during the month. What will the finance charges be if the creditor uses the previous balance method?

Answer 1

$4.5

Explanation:

The previous balance method is a method in which the creditor charges the interests according to the balance the consumer had at the beginning of the billing cycle and the operations that you do during the cycle don't affect your finance charges. Because of that, to find the aswer you have to calculate your finance charges using the previous balance that was $300:

Monthly interest: 18/12=1.5%

Previous balance: $300

$300*1.5%= $4.5

According to this, the finance charges would be $4.5 if the creditor uses the previous balance method.