Question

You finance a $500 car repair completely on credit, you will just pay the minimum payment each month for the next three months. The APR is 18.99% and the minimum payment each month is 4% of the balance. Determine the finance charge, carry-over balance, and minimum payment required for each of the next two months, and the starting balance for month 2 in the table below.

Answer 1

Determination of the Finance Charge, Carry-over balance, Minimum Payment for each of the next two months:

Finance Charge:

First month = $7.91

Second month = $7.72

Carry-over balance:

First month = $487.59

Second month = $475.50

Minimum Payment:

First month = $20.32

Second month = $19.81

Starting balance (Carry-over balance + Finance charge):

First month = $507.91

Second month = $495.31

Explanation:

a) Data and Calculations:

Credit Finance = $500

APR = 18.99%

Minimum monthly payment = 4% of the balance

Monthly rate of interest = 0.1899/12 = 0.015825

Finance Charge:

First month = $7.91 ($500 * 0.015825)

Second month = $7.72 ($487.59 * 0.015825)

Carry-over balance:

First month = $487.59($507.91 - $20.32)

Second month = $475.50 ($495.31 - $19.81)

Minimum Payment:

First month = $20.32 ($507.91 * 4%)

Second month = $19.81 ($495.31 * 4%)

Starting balance (Carry-over balance + Finance charge):

First month = $507.91 ($500 + $7.91)

Second month = $495.31 ($487.59 + $7.72)