To find the cost of credit we can subtract the loan amount from the total amount paid over the course of the loan.
The monthly payment is $257.67 and the loan term is 2 years, so the total number of payments is 2 years * 12 months/year = 24 payments.
The loan amount is $5,000, so the total amount paid over the course of the loan is 24 payments * $257.67/payment = $6,184.08.
The cost of credit is $6,184.08 - $5,000 = $1,184.08.
Rounded to two decimal places, the cost of credit is $1,184.08.
Determine the cost of credit for a 2-year, $5,000 credit card loan with a monthly payment of $257.67, which corresponds to a fixed compound interest rate of 21.3% compounded monthly. Round the answer to two decimal places as needed.
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