Question

You owe $1,032.56 on a credit card with an 11.25% APR. The minimum due is $150.00. What is the difference in the interest accrued if you pay the minimum amount due at the beginning of the month versus at the end of the month?

Using the credit card information from Problem 3, you decide to pay $300.00 instead of $150.00 at the beginning of the month. How much do you save in interest by doubling the amount?

Answer 1

Monthly rate = 11.25%/12 = 0.009375 (0.9375%).

1) Paying $150 at the beginning vs the end of the month:
- Interest if you pay at the end: 1,032.56 × 0.009375 = $9.68
- Interest if you pay $150 at the beginning: (1,032.56 − 150) × 0.009375 = 882.56 × 0.009375 = $8.27
- Difference (saved by paying at the beginning) = $9.68 − $8.27 = $1.41

2) Paying $300 at the beginning instead of $150 at the beginning:
- Interest if you pay $300 at the beginning: (1,032.56 − 300) × 0.009375 = 732.56 × 0.009375 = $6.87
- Saving vs $150 at the beginning = $8.27 − $6.87 = $1.41

(If you compare $300 at the beginning to $150 paid at the end, the saving is $9.68 − $6.87 = $2.81.)

So doubling the payment at the start saves an extra $1.41 in interest for that month.