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7.2 – Finance Charge – Unpaid Balance Method

7.2 – Finance Charge – Unpaid Balance Method. Definition & Formulas. unpaid-balance method (p. 261) Computing the finance charge on a credit account based on the portion of the previous balance that has not been paid. Unpaid Balance = Previous Balance – (Payments + Credits)

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7.2 – Finance Charge – Unpaid Balance Method

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  1. 7.2 – Finance Charge – Unpaid Balance Method

  2. Definition & Formulas unpaid-balance method (p. 261) Computing the finance charge on a credit account based on the portion of the previous balance that has not been paid. Unpaid Balance = Previous Balance – (Payments + Credits) Finance Charge = Unpaid Balance ×Periodic Rate New Balance = Unpaid Balance + Finance Charge + New Purchases

  3. Example • Jack has a charge account which uses the unpaid-balance method for finance charges. The periodic rate is 1.85 percent. If his previous balance is $478.68, he had payments and credits of $250.00 and he has new purchases of $38.50, find his new balance.

  4. Solution • Step One: Find the unpaid balance Unpaid Balance = Previous Balance – (Payments + Credits) • Previous Balance = 478.68 • Payments & Credits = $250.00 • Unpaid Balance = 478.68 – 250.00 • Unpaid Balance = $228.68 • Step Two: Find the Finance Charge Finance Charge = Unpaid Balance ×Periodic Rate • $228.68 x .0185 = $4.23 • Step Three – Find the new balance New Balance = Unpaid Balance + Finance Charge + New Purchases • New Balance = 228.68 + 4.23 + 38.50 • New Balance = $271.41

  5. Assignment • P. 262-263 1-26all

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