How can I figure out this number

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Fanny
 
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Joined: Fri Apr 19, 2013 1:26 am
Location: Canada

How can I figure out this number

Postby Fanny » Fri Apr 19, 2013 1:41 am

Hi,

I just got a credit card and I read the details in the price list.

APR: 16.9%
Fixed face monthly rate: 1.4%
Fixed face yearly rate: 16.86%
Fixed debt rate 18.21%
52 days interest free

There is a statement in the pricelist as : if you use your credit on 10000$ every month in 12 month, then the total cost is 1583 $, thus you have to payback 11583$.

I ever did the simple calculation for the statement: why isn't it as 10000*1.4%*12=1680 ? is there any trick or something?

Thanks a lot if someone can help!


selfmadetool
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Location: New York

Postby selfmadetool » Sun Apr 21, 2013 11:23 am

I'm stumped. I can't get the numbers to work with the information provided. Canadians don't have a different way of doing math, so I guess I'm losing my touch.

If someone is using $10,000 of credit each month, he or she would only be paying interest if (i) there wasn't a grace period or (ii) the bill wasn't being paid in full. Since your post mentions 52 days interest free, then there's a grace period.

At 16.9% APR, in order to pay $1,583 in interest, monthly payments of $566 (with a final payment of $263), or some similar variation, would have to be made, but it would take 21 months. In order to pay a $10,000 balance off in 12 months, payments of $911.57 would have to be made, but the total interest paid would only be $938.88.

The reason why it's not "10000*1.4%*12=1680" is because you have to take into account monthly payments (at least for the minimum amount) being made (i.e., the first month the balance is $10,000, but after a payment is posted, the second month the balance will be less). In other words, 10000*1.4% (or $10,000*((16.9/12)/100)) would be fine for the first month. The second month, it would be (10000-first month's payment minus interest)*1.4%.

An amortization schedule could look something like this:

Beginning balance: $10,000.00

Month--Payment--Interest--Principal--Balance
1--$566.00--$138.90--$427.10--$9,572.90
2--$566.00--$137.40--$428.60--$9,144.30
3--$566.00--$127.02--$438.98--$8,705.32
4--$566.00--$124.95--$441.05--$8,264.27
5--$566.00--$118.62--$447.38--$7,816.89
6--$566.00--$108.58--$457.42--$7,359.47
7--$566.00--$105.63--$460.37--$6,899.10
8--$566.00--$95.83--$470.17--$6,428.93
9--$566.00--$92.28--$473.72--$5,955.21
10--$566.00--$85.48--$480.52--$5,474.69
11--$566.00--$70.98--$495.02--$4,979.67
12--$566.00--$71.48--$494.52--$4,485.15
13--$566.00--$62.30--$503.70--$3,981.45
14--$566.00--$57.15--$508.85--$3,472.60
15--$566.00--$48.24--$517.76--$2,954.84
16--$566.00--$42.41--$523.59--$2,431.25
17--$566.00--$34.90--$531.10--$1,900.15
18--$566.00--$26.39--$539.61--$1,360.54
19--$566.00--$19.53--$546.47--$814.07
20--$566.00--$11.31--$554.69--$259.38
21--$263.10--$3.72--$259.38--$0.00

Total interest paid: 1,583.10

If anyone else has any ideas, definitely chime in!
Bank of America: BankAmericard Cash Rewards ($10k); Accelerated Cash Rewards ($12k)
Chase: Freedom ($2.6k); Amazon.com Rewards ($5k)
American Express: Blue Card Everyday ($14k)
Citibank: Forward ($7k); ThankYou ($10.5k)
Discover: More ($14.5k)
Barclaycard US: Barclaycard Ring ($9.4k)
GECRB: Banana Republic ($4.5k); Amazon.com Store Card ($10k)
Comenity: J. Crew ($3.6k)

DoingHomework
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Location: Arizona

Postby DoingHomework » Mon Apr 22, 2013 3:12 pm

The wording does not make sense. Did you perhaps translate that from French? Because perhaps the translation is not technically correct.

"Fixed face monthly rate" is not something I have ever heard of in any country. In English there are several terms that might be used but I have never heard of that one.

Fanny
 
Posts: 2
Joined: Fri Apr 19, 2013 1:26 am
Location: Canada

Postby Fanny » Tue Apr 23, 2013 1:11 pm

Thank you very much!! I totally understand now!



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