a) If only minimum payment is made, the card cannot be repaid at all as the annual interest added will be more than the annual payment made. Annual payment = 50 * 12 = $600. Annual interest = 9400 * 20% = $1880.
b) If only the minimum payment is made, the total interest will keep getting computed till eternity.
c) Even double the minimum payment will be annual payment of $1200 against interest of $1760 on closing balance of first year.
d) If even double the minimum payment is made, the total interest will keep getting computed till eternity.
e)
If monthly payment is $ 400, then the workings are as below:
Months | Outstanding | Monthly interest | Payment | Monthly balance outstanding |
1 | 10,000 | 167 | 400 | 9,767 |
2 | 9,767 | 163 | 400 | 9,529 |
3 | 9,529 | 159 | 400 | 9,288 |
4 | 9,288 | 155 | 400 | 9,043 |
5 | 9,043 | 151 | 400 | 8,794 |
6 | 8,794 | 147 | 400 | 8,540 |
7 | 8,540 | 142 | 400 | 8,283 |
8 | 8,283 | 138 | 400 | 8,021 |
9 | 8,021 | 134 | 400 | 7,754 |
10 | 7,754 | 129 | 400 | 7,484 |
11 | 7,484 | 125 | 400 | 7,208 |
12 | 7,208 | 120 | 400 | 6,929 |
13 | 6,929 | 115 | 400 | 6,644 |
14 | 6,644 | 111 | 400 | 6,355 |
15 | 6,355 | 106 | 400 | 6,061 |
16 | 6,061 | 101 | 400 | 5,762 |
17 | 5,762 | 96 | 400 | 5,458 |
18 | 5,458 | 91 | 400 | 5,149 |
19 | 5,149 | 86 | 400 | 4,834 |
20 | 4,834 | 81 | 400 | 4,515 |
21 | 4,515 | 75 | 400 | 4,190 |
22 | 4,190 | 70 | 400 | 3,860 |
23 | 3,860 | 64 | 400 | 3,524 |
24 | 3,524 | 59 | 400 | 3,183 |
25 | 3,183 | 53 | 400 | 2,836 |
26 | 2,836 | 47 | 400 | 2,484 |
27 | 2,484 | 41 | 400 | 2,125 |
28 | 2,125 | 35 | 400 | 1,760 |
29 | 1,760 | 29 | 400 | 1,390 |
30 | 1,390 | 23 | 400 | 1,013 |
31 | 1,013 | 17 | 400 | 630 |
32 | 630 | 10 | 400 | 240 |
33 | 240 | 4 | 244 | - |
It will take 33 months to pay off the card.
f) Total interest paid is $3044.
g) If one pays $10 per month, it will not be possible to pay off the card.
h) Interest will accrue till eternity.
i) The interest rate on card is 20% which is very high and a source of income for banks. So they will want the payment in the card to be the minimum.
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