Analyse the three scenarios below for purchasing a $1,500 all-terrain vehicle (ATV) with a credit card. Assume
Question:
Analyse the three scenarios below for purchasing a $1,500 all-terrain vehicle (ATV) with a credit card. Assume your credit card company has a 12% interest rate; you can see this interest rate in the APR row. For each scenario, there is a different minimum monthly payment: $45, $100, and $500. How do these different monthly payments affect your financial status?
Purchase: $1,500 ATV | |||
---|---|---|---|
Option | 1 | 2 | 3 |
Annual Percentage Rate | 12% | 12% | 12% |
Minimum Monthly Payment | $45 | $100 | $500 |
Months Needed to Pay Off | 41 months | 17 months | 4 months |
Finance Charges | $334 | $133 | $31 |
Total Cost | $1,834 | $1,633 | $1,531 |
After analyzing the table above, answer the following questions. Be sure to explain your answers using complete sentences. You can refer to the rubric below to guide your answers.
1. How do the different monthly payments affect the months needed to pay off the debt? Explain.
2. How do the different monthly payments affect the finance charges on the $1,500 purchase? Explain.
3. How do the different monthly payments affect the total cost of the purchase? Explain.
4. Why would someone choose option 1 when paying off this purchase? Why would someone be against this option?
5. Why would someone choose option 3 when paying off this purchase? Why would someone be against this option?
6. What option would you choose: 1, 2, or 3? Why? Would this fit into your financial planning?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill