1 / 14

Do you know the answer?

Do you know the answer?. What is the annual interest rate of most credit cards in Canada? Government restricts it to less than 20%, so the credit card companies usually charge 19.999% Other than charging interest on overdue balances, how do credit card companies make money?

shandi
Télécharger la présentation

Do you know the answer?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Do you know the answer? What is the annual interest rate of most credit cards in Canada? Government restricts it to less than 20%, so the credit card companies usually charge 19.999% Other than charging interest on overdue balances, how do credit card companies make money? Merchants pay a service fee of 1-3% of the overall bill What is the formula for Future Value? FV=PV(1+i)n

  2. Unit 8 - Finance Managing Credit Cards

  3. How Credit Card companies make money: • Merchants pay service fee of 1-3% of total amount charged. • Interest paid on overdue balances

  4. Credit cards Pros Cons • Easy to use • Can purchase things even if you don’t have the money • Can purchase items over the phone or internet • Some credit cards have reward programs (i.e. Air miles, Aeroplan, cash back) • High amounts of interest on overdue balances • Easy to lose track of how much is spent (spend beyond what one can afford) • Have to apply for a credit card. usually have to be over 18 and have good credit rating • Credit card fraud

  5. Credit card examples For each credit card statement answer the following: • What is the amount of new purchases? What is the new balance? • What is the minimum payment? • How many days after the statement date is the minimum payment due? • What are the credit limit and the available credit limit? Why are they different? • What is the annual interest rate? The daily interest rate? • If the balance was paid in full 100 days after the payment due date, how much interest will be charged?

  6. g) • If the interest rate was 5% annually compounded daily, how much would you owe after 100 days? • i=5%/365, n=100, PV=$707.26 • FV=$707.26(1+0.05/365)100 • FV=$717.01 • I=FV-Principal • I=$717.01-707.26 • I=$9.75

  7. What are some strategies to avoid paying high interest rates? • Spend Wisely • Have a budget • Pay before due date

  8. Refinancing • Replacing a loan or debt with a new loan/debt offering better terms. • Priority is to reduce high interest penalties by borrowing at a lower rate to pay of high interest debt. Methods: • Spend less / Save more • Increasing mortgage • Take out line of credit on house • Bank loan • Work more • Debt consolidation – Consolidating various types of debt into one loan/debt

More Related