Question

Elizabeth’s credit card computes her finance charges using the previous balance method and a 30-day billing cycle. The table below shows Elizabeth’s credit card transactions in July.

Date
Amount ($)
Transaction
7/1
969.26
Beginning balance
7/3
45.00
Payment
7/10
67.48
Purchase
7/12
20.00
Payment
7/28
85.00
Payment

If Elizabeth has an APR of 14.61%, how much will her July finance charge be?
a.
$9.97
b.
$12.62
c.
$11.80
d.
$10.80

Answer 1

Previous-balance method uses the balance at the start of the cycle ($969.26) and applies the monthly rate (APR/12).

Monthly rate = 14.61%/12 = 0.1461/12 = 0.012175

Finance charge = 969.26 × 0.012175 = $11.80

Answer: c. $11.80