# Which has the lowest total payment and interest

Anonymous
timer Asked: Apr 28th, 2014

Question description

Loans and Credit

In this open response, you are going to pretend to be buying a high priced item using credit of different kinds.  We are going to compare the cost of each and come to a conclusion.

I.  Find Your Item  (5 pts)

Using the links below, or one of your choosing, find an item you would like to buy in the \$300 to \$700 range.  List the item in the table provided.  Even though you would normally include tax, shipping and handling, we will ignore these in this exercise.

 Name of Item Special details Site where you found it Price

LINKS:

http://www.circuitcity.com/ccd/home.do

http://www.sony.com/

http://www.tiffany.com/

http://www.zales.com/

II.  Option 1: Use Your Credit Card  (15 pts)

You have a Maxi Card with a \$700 limit for this exercise.  The card has a monthly finance charge of 1.67%.  Fill out the following table.  Your payment each month is \$50.  You are finished when you have paid it off.

Each month, except the first:

Balance = last month’s new balance – payment

Monthly Finance Charge = balance (0.0167)

New balance = balance + monthly finance charge

 Month 1 2 3 4 5 6 7 8 Balance Interest New Balance Payment

 Month 9 10 11 12 13 14 15 16 Total Balance Interest \$ New Balance Payment \$

Option 2: Get a Bank Loan (10 pts)

You visited a local bank.  Because of your good credit, they agreed to give you a personal loan, simple interest, at the current interest rate of 12.5% APR.

You will pay this back in 1 year.

Interest = p r t =__________________

Total Payment = Principal + Interest = ______________

Payment per month = Total Payment / 12 = ______________

III.  Option 3: Installment Plan (10 pts)

The store you are buying the item down offers you an installment plan.

The terms of the contract for the plan are:

·  \$50 down

·  12 payments

·  Finance charge of \$100

Interest = Finance Charge = ________________

Total Payment = Cost of item + Finance charge = _____________

Monthly Payment = (Total Payment – Down payment / 12 = __________

IV.  Time to Choose! (10 pts)

Compare the three options.

a.  Which is the most convenient?

b.  Which has the shortest payment time?

c.  Which has the lowest total payment and interest?

d.  Which has the lowest monthly payment?

e.  Make a choice.  Assuming that you could not pay for your item any other way, which would you choose and why?  Your reasons why may incorporate a, b, c, and d, but may also include other reason

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