Your friend wants to pay off his credit card with a balance of $880.00 and an interest rate of 16.65% APR by getting a loan from you. You agree to the loan, but insist your friend pay you interest of 3.25% APR. Your friend agrees. How much interest does your friend save at the end of the first month by paying you instead of the credit card?

Answer 1

First, let's calculate how much interest your friend would pay on his credit card in the first month:

Monthly interest rate on credit card = 16.65% / 12 months = 1.3875%

Interest on credit card for the first month = $880.00 * 1.3875% = $12.18

Next, let's calculate how much interest your friend would pay to you in the first month:

Monthly interest rate on loan from you = 3.25% / 12 months = 0.2708%

Interest on loan from you for the first month = $880.00 * 0.2708% = $2.38

Therefore, your friend would save $12.18 - $2.38 = $9.80 in interest by paying you instead of the credit card in the first month.