Professional Documents
Culture Documents
Finance Charges Part 1-1
Finance Charges Part 1-1
Annual
APR, or ____________ Percentage
Rate
______________ _________ is the interest rate charged for borrowing money.
The APR makes it easier to compare the cost of loans and credit cards because you can easily see which
loan or credit card would be cheaper just by comparing the rates. If all other factors are equal, a card
with a 15% APR would be better than a card with an 18% APR.
When lenders calculate the amount of interest or the finance charge on your account balance, they do not use
the Annual Percentage Rate, because your account statement is periodic, not annual.
periodic
**The credit company uses a ___________________ rate, which is the interest rate charged over a certain
APR
number of time-periods. The periodic rate equals the _____________ divided by the number of periods.
For example, the interest on a credit card is usually calculated monthly, so if the APR is 20% then you
12 1.67
divide 20% by ________ to get __________.
20 12
1.6661
Lesson Objective: Compute the finance charge on a monthly statement using the unpaid-balance method.
Some credit card companies use the unpaid-balance method to compute finance charges.
This method computes the finance charge based on the portion of the previous balance you have not yet paid.
The process involves three steps:
a
2) Finance Charge = Unpaid Balance × Monthly Periodic Rate
3) New Balance = Unpaid Balance + Finance Charges + New Purchases
Example 1
1. Rosie Lane has a credit account with an APR of 19%. The finance charge is calculated monthly. What is
the monthly periodic rate?
19 712 19 120 0
91.58
A portion of Rosie’s account statement is shown below. Calculate Rosie’s finance charge for this month
and then find her new balance.
2. You have a credit card with an APR of 16%. The finance charge is calculated monthly. What is the
monthly periodic rate?
16 12 1.33
A portion of your account statement is shown below. Calculate your finance charge for this month and
then find your new balance.
05/20/-- $981.35
3.08 $750.00 $416.49
650.92
Unpaid Balance 981.35 750 231.3
Finance charge 231.35 1.33 100 3.0
3. Joey has a credit card with a monthly periodic rate of 2.0%. Joey has a previous balance of $291.84. He
FREY
made a payment during the month of $200.00 and made three new purchases: $17.40, $17.70, &
$46.04. Complete the statement summary below.
07/01/--
291.84 1.84 200.00 81.14 174.82