Credit Is Costly

CHAPTER 4, LESSON 4

NAMES DATE
Magnolia vickery

DIRECTIONS
Use the following key terms and the information on the Sample Disclosure Form to answer the questions.

Key Terms
• Annual Fee: the fee a credit card company charges for the use of their credit card
• Credit Limit: the maximum amount of money the lender is willing to loan to an
applicant
• Finance Charge: the total cost of using credit including interest and fees
• Origination Fee: the charge for setting up a loan (ofen associated with home loans)
• Loan Term: the length of time you have to pay the loan (Remember, the longer the
loan, the lower your monthly payment and the greater the interest paid.)
• Grace Period: the length of time that the lender charges no interest on money
borrowed when you pay off your balance in full each month
• Annual Percentage Rate: the cost of the loan each year expressed as a percentage (All
lenders are required by law to calculate APR the same way.)
• Introductory Rate: lower interest rate offered by credit card companies, usually for
a short period of time, to entice you to sign up for credit with them (Eventually, the
introductory rate expires and a new increased rate takes effect.)

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 1 O F 5

 Sample Disclosure Form
Annual Percentage Rate A 0% fxed APR until the frst day of the billing cycle. Afer that, 11.99%
(APR) for purchases fxed, 14.99% fxed, or 21.99% fxed, depending on our review of your
application and credit history (a).
Other APRs Balance Transfer APR: 0% fxed APR until the frst day of the billing cycle.
Afer that, 11.99% fxed, 14.99% fxed, or 21.99% fxed, depending on our
review of your application and credit history.
Cash Advance APR: 25.24%
Variable Default APR: Up to 34.24% variable. See explanation below (b).
Variable rate information The following APRs may vary monthly based on the Prime Rate (c):
Cash Advance APR: the Prime Rate plus 16.99%
Default APR: the Prime Rate plus up to 24.99%
Grace period for At least 20 days
repayment of
purchase balances
Method for computing the Average daily balance method (including new purchases)
balance for purchases
Annual fee None

Minimum fnance charge $1

Transaction fee for 3% of the amount of each transaction, but not less than $5 or more than $99
balance transfers
Transaction fee for 3% of the amount of each transaction, but not less than $10
cash advances
Late payment fee $15 on balances up to, but not including, $100; $29 on balances of $100 up
to, but not including, $250; and $39 on balances of $250 or higher
Over-the-limit fee $39

International transactions 3% of the U.S. dollar amount of the transaction, whether originally made in
U.S. dollars or converted from a foreign currency

(a) Rates, fees, and terms may change: We reserve the right to change the account terms (including the APRs) at any
time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.
For example, we may change the terms based on information in your credit report, such as the number of other
credit card accounts you have and their balances. The APRs for this offer are not guaranteed; APRs may change to
higher APRs, fxed APRs may change to variable APRs, or variable APRs may change to fxed APRs. Any changes will
be in accordance with your account agreement.

(b) Your APRs may increase if you default under any Card Member Agreement you have with us for any of the following
reasons: we do not receive at least the minimum payment due by the date and time due, you exceed your credit line on this
account if applicable, or you make a payment to us that is not honored by your bank. Your APRs may increase as of the frst
day of the billing cycle in which the default occurs. We may consider the following factors to determine the default rate:
the length of time your account has been open; the existence, seriousness, and timing of defaults; other indications of your
account usage and performance; and information about your other relationships with us or any of our related companies.

(c) The Prime Rate is the highest prime rate published in the Money Rates column of The Wall Street Journal two
business days before the closing date on the statement for each billing period.

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 2 O F 5

 Credit Is Costly
CHAPTER 4, LESSON 4

1. Explain when this credit card company can adjust the APR.
This credit card company has a fixed 0% APR until the first billing cycle, this is when it raises to
11.99%, 14.99%, or 21.99% depending now your financial worthiness. A higher APR will is applied
to cash advances (25.24%) and defaults (up to 34.24% variable), and triggered by missed
payments or violations of account terms.

2. What is the annual fee for having this credit card?

No annual fee from this credit card company.

3. What is the grace period on this card?

The grace period is a minimum of 20 days.

4. What is the APR for this credit card?

Starts at 0% and grows after the first billing cycle.

5. How much will it cost in fees to transfer a $1,000 balance to this card?
The transfer balance fee would be $30 to transfer $1,000.

6. What is the charge if you exceed your credit limit?

Over-the-limit fee is $39.

7. What will your charge be if your payment is late, and how will it affect your APR?
Late fee payments starts at $15 for balances up to $100; $29 for balances up to $250; and $39 on
balances $250 and higher.

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 3 O F 5

 Credit Is Costly
CHAPTER 4, LESSON 4

DIRECTIONS
To discover the difference that the total amount of a payment can make on your total payoff and the total amount
of interest paid, answer the following questions using the three charts provided.
*Note: The following questions don’t use the Sample Disclosure Form.

DEBT PAYOFF CHART #1

Total Debt (also called the principal) $1,000 Monthly Payment $30

Interest Rate 12.99% Total Months to Payoff 42

8. Calculate the total payoff if just making a $30 payment.

(number of months × monthly payment amount)
The total payoff of a $30 payments is 1,260.

9. How much of that payoff would be interest payments?

$314.75 of that 1,260 would a interest.

DEBT PAYOFF CHART #2

Total Debt (also called the principal) $1,000 Monthly Payment $60

Interest Rate 12.99% Total Months to Payoff 19

10. Calculate the total payoff amount if you doubled the original $30 monthly payment to
$60 per month. (number of months × monthly payment amount)
Total amount if the original $30 was doubled is 1,140.

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 4 O F 5

 Credit Is Costly
CHAPTER 4, LESSON 4

11. How much of that payoff would be interest payments?

of $1,140 would be interest.

DEBT PAYOFF CHART #3

Total Debt (also called the principal) $1,000 Monthly Payment $90

Interest Rate 12.99% Total Months to Payoff 12

12. Calculate the total payoff amount if you tripled the original $30 monthly payment to
$90 per month. (number of months × monthly payment amount)
Total payoff amount is 1,080.

13. How much of that payoff would be interest payments?

$80 of 1,080 would be interest payments.

14. Compare the total amount of interest paid for each level of payment. Calculate the
amount of money you would save by paying more than the minimum $30 amount.

15. How much would you have to save each month in order to pay for the $1,000 item in
cash in 12 months?
You would have to save $176.34 to save for a $1,000 in 12 months.

FO U N DATI O NS I N PERSONA L FI NA NCE PAGE 5 O F 5