Round to the nearest penny.

You owe $1,350.00 on a credit card with a 14.25% APR. You pay $300.00 at the beginning of the month. How much interest do you save by paying at the beginning of the month versus at the end of the month?

1 answer

To calculate the interest saved by paying at the beginning of the month versus at the end of the month, we need to calculate the interest that would accrue if you paid at the end of the month.

First, we need to calculate the daily interest rate:
APR = 14.25%
Daily interest rate = (14.25% / 365) = 0.039%

Next, we calculate the interest that would accrue if you paid at the end of the month:
Principal balance = $1,350.00
Number of days in a month = 30
Interest accrued = Principal balance * Daily interest rate * Number of days in a month
Interest accrued = $1,350.00 * 0.00039 * 30
Interest accrued = $15.75

Now, let's calculate the interest savings by paying at the beginning of the month:
Principal balance at the beginning of the month = $1,350.00 - $300.00 = $1,050.00
Interest accrued = Principal balance * Daily interest rate * Number of days in a month
Interest accrued = $1,050.00 * 0.00039 * 30
Interest accrued = $12.285

Therefore, you would save:
Interest saved = Interest accrued at the end of the month - Interest accrued at the beginning of the month
Interest saved = $15.75 - $12.285
Interest saved = $3.47

So, by paying $300.00 at the beginning of the month rather than the end, you would save approximately $3.47 in interest.
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