Use the unpaid balance method to find the finance charge on the credit card acco

Question

Use the unpaid balance method to find the finance charge on the credit card account for April. The starting balance from the previous month is ?$270 . The transactions on the account for the month are given in the table to the right. Assume an annual interest rate of 25 ?% on the account and that the billing date is April 1st.

Date               Transaction

April 8   Charged ?$150 for a coat

April 15         Made payment of ?$140

April 22          Charged ?$25 for DVDs

April 28          Charged ?$34 for groceries

The finance charge for the month of April is ?$

Explanation / Answer

Annual interest rate = 25%

Monthly interest rate = 25% / 12 = 2.083

The finance charge for the month = Interest rate * [Previous balalnce + Interest on previous balalnce + Transactions through credit card - Payments ]

=0.02083* [ $ 270 + ($270 * 0.02083) + 150 + 25 +34 - 140 ]

= 0.02083 * 344.625

= 7.18

The finance charge for the month of April is ?$ 7.18

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