CH 6 No Interest Nothing Down Student Activity(1)
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C HAP T E R
6
Activity:
No Interest, Nothing Down F oun D A TI ons I n PER son AL FI n A n CE C o LLEGE EDITI on
CHAPTER 6: Consum ER Aw ARE n E ss
Name Alexandria Krupinski
Date Objective
The purpose of this activity is to identify the fees associated with credit and calculate the additional expenses of late payments.
Directions
Read the disclosure statement carefully and answer the questions below. You will need a calculator to complete
the activity.
Questions:
1 Kelsey and Cody want new living room furniture. They see a flyer in Sunday’s newspaper for the furniture store, offering free money for 24 months (or so they think). At the store, they pick out a leather sofa and two ottomans. The sofa is $1,499 and each ottoman is $299. Are they eligible for the promotion? Why or why not?
Kelsey and Cody’s furniture reaches a total cost of $2,097. The minimum purchase for the promotion is $2,399. They are not eligible. 2 What do Kelsey and Cody have to do (like most consumers) to meet the terms of this promotion?
To meet the terms of the promotion, Kelsey and Cody would have to purchase another item, or purchase more expensive items. They would also then need to apply and get approved for the store credit card. Furniture Store Credit Card Disclosure Statement: On approved furniture store credit card purchases
—based on your credit worthiness, other terms may apply. $2,399 minimum purchase required for this offer. Other finance offers
available with lower minimum payment requirements. The purchase amount is divided into equal monthly payments for the
promotional period. An addi- tional $37 will be added to the following month’s payment when payment is received after the due
date. No finance charges for 24 months. 23.9% standard rate, APR. The promotion is cancelled for accounts not current, and the
default rate of 25.9% and regular minimum monthly payments apply. Minimum finance charge $2. Certain rules apply to the
allocation of payments and finance charges on your promotional purchase if you make more than one purchase on your credit card.
Call 1-800-123-4567 or review your cardholder agreement for information. Sale items and clearance items excluded. Offer does not
apply to previous purchases and cannot be com- bined with other discounts.
6
C HAP T E R
Activity:
No Interest, Nothing Down F oun D A TI ons I n PER son AL FI n A n CE C o LLEGE EDITI on
CHAPTER 6: Consum ER Aw ARE n E ss
3 In addition to the three-piece sofa set above, Kelsey and Cody also purchase a $249 coffee table and $199 end table. What is the total amount financed, including $153 for tax and $75 for delivery?
The total amount financed would be $2,773.
4 According to the conditions above, what should their monthly payment be? If Kelsey and Cody do not send their payment in on time, what will the following month’s payment be?
According to the condition above, with the total amount financed being $2,773, their monthly payment should be $115.64 per month for the first 24 months. If they don’t send their payment in on time, the following month’s payment will be $152.64, because there is a $37 fee.
5 Kelsey and Cody have been making payments on this furniture for 18 months, but Cody gets laid off from his job and their income drops substantially. They are unable to stay current on their account, even though they have paid $2,070 of the bill. According to the above terms, what happens to their bill?
Their interest rate will increase to 25.9% APR, and minimum monthly payments will apply. 6 Which finance charge will apply to them?
25.9% APR
7 Assume they are back-charged that rate from the beginning of the promotional period, how much will they owe in finance charges for the first year?
$182.01 8 What is the minimum amount they would have saved if they paid cash? (Hint, think about their original intended purchase.)
They would have saved a minimum of $219.01 with the late fee and finance charges, and they would have saved $249 from not buying the coffee table and $199 for not buying the end table. This leaves them with a total minimum savings of $667.01.
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