Round any decimals to the nearest penny.

Question

Secured Unsecured
Credit APR APR
Excellent 4.75% 5.50%
Good 5.00% 5.90%
Average 5.85% 6.75%
Fair 6.40% 7.25%
Poor 7.50% 8.40%

Use the table above for interest rate questions.
If you improved your credit score to good and paid $1,500 on your purchase from question 11, how much interest could you save in the first month?
$

Answer 1

To calculate the interest saved in the first month by improving your credit score to "Good," we will first find the monthly interest for both secured and unsecured loans at the respective APRs.

1. Secured Credit (Good APR of 5.00%):

   • Monthly interest rate = 5.00% / 12 = 0.41667%
   • Amount = $1,500
   • Monthly interest = Amount × Monthly interest rate
   • Monthly interest = $1,500 × 0.0041667 ≈ $6.25

2. Unsecured Credit (Poor APR of 8.40%):

   • Monthly interest rate = 8.40% / 12 = 0.70000%
   • Amount = $1,500
   • Monthly interest = Amount × Monthly interest rate
   • Monthly interest = $1,500 × 0.0070000 ≈ $10.50

3. Interest Saved:

   • Interest saved = Unsecured monthly interest - Secured monthly interest
   • Interest saved = $10.50 - $6.25 ≈ $4.25

Thus, if you improved your credit score to "Good" and paid $1,500 on your purchase, you could save approximately $4.25 in interest in the first month.