Hi,

I have a question on my assignment which I have answered below. Can someone please tell me if this has been done correctly.

The question is outline below along with my answer:

Simon can finance his purchase of a 1500 virtual reality (VR) headset:

  • A.
    He can buy it on a credit card, which charges 25% APR on balances that are not paid off within 1 month. This will be the only purchase made with the card, which has a zero balance at the moment. He will pay off 750 within the interest-free period (using the money in his current account that pays no interest), and the rest of the balance in 12 equal monthly instalments.
  • Using the Saving and borrowing calculator, calculate the total amount of interest that Simon will be charged over the lifetime of the loan.

My
My answer:

In option A, Simon will pay less interest. Even though he will be borrowing the full 1,500 on his credit card, he will repay half of the money 750 within the interest free period (1 month), which means he will only pay the remaining 750 at an interest rate of 25% APR over 12 months.

The total interest he will pay is 94.56