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Unformatted text preview: with the total divided by the number of payments made Popular with car dealers because it dramatically increases APR Example 6% interest on a $10,000 car for three years = $10,000 x 6% = $600 x 3 yr = $1,800 of interest. Car note = ($10,000 + $1,800) divided by 36 months or $327.77 or 11.08% APR (INT key) or 11.66% effective rate 9 Cost of Open­End Credit Adjusted balance The assessment of finance charges after payments made during the billing period have been subtracted Previous balance Method of computing finance charges that gives no credit for payments made during the billing period 10 Credit Card Interest Method Average daily balance excluding new purchases Average daily balance including new purchases Two cycle daily balance excluding new purchases Two cycle daily balance including new purchases Benefit for Consumer Best Better (typical) Bad (now illegal) Worst (now illegal) 11 Interest Calculations See Module 7 homework excel sheet for illustrations of how interest is calculated under each method, which will help with the homework questions Remember Previous balance method is a bad deal Add on or tack on interest typically increases APR Do the math for 0% financing or $ rebate options Look at the total cost of financing; avoid longer 12 term loans to reduce monthly payments A Word on Credit Cards Look for no annual fee and a low interest rate (if you plan to carry a balance) A cash rebate would be nice The interest you pay on consumer credit is not tax deductible Interest is generally compounded DAILY Avoid the minimum monthly payment trap Don’t use cards with no float or grace period Credit insurance is a bad deal 13 New Credit Card Law Now Illegal Charges for paying by phone Sudden increase in interest rate Interest charges based on double cycle billing Retroactive rate increase (unless over 60 days late) Old rate reinstated after by paying on time for 6 months Over limit fees unless consumers signs up Rate increases in first year New Requirements Payments above minimum applied to highest interest rate Must send bills 21 days before due date Provide 45 days notice before changing terms Disclose repayment time using minimum payment Promotional rates must last 6 months 14 New Credit Card Law Under 21 Card company must Get signature of parent *, or Signature of qualified adult to take responsibility for the debt *, or Proof that under 21 can repay credit Expected im...
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