2. Suppose you kept an average daily balance of $1,000 on the credit card for th

Question

2. Suppose you kept an average daily balance of $1,000 on the credit card for the entire introductony period. How much interest would you save versus the regular APR during the 0.00% introductory period? (You can assume the monthly rate is the annual rate divided by 12.If given an APR range, use the lower percentage of the range.) 3. Why would banks want to offer such low rates as an introductory offer to new customers? 4. What are the pros and cons to carrying a balance on yopr credit card during these low introductory rate periods?

Explanation / Answer

Suppose the introductory period is 2 months and the APR rate 12%, the amount of interest saved on the daily balance of $1000, is

$1000*12%/12 * 2 months

= $20

3: Banks would offer 0% rate as introductory offer to customers to attract customers to take their credit cards. This is just a promotion scheme which will entice people to take the credit card from this particular bank due to interest savings.

4: The benefit of this scheme is that the credit card balance is interest free. This may be useful for a large purchase to be made during this period. The disadvanatage of this balance is that it may be ignored and the bank may soon charge a rate which is much higher than other banks thus leading to higher interest payments in future. Balance transfers may not be included in this and a balance transfer fee may be charged.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.