Lesson 12 Installment Buying
Many stores have arrangements for buying expensive items on
the installment plan. This means that you pay for the item over a
period of months. Some stores charge a monthly finance charge
of 1% of the unpaid balance.
Previous balance
Amount owed before a
payment is made
Finance rate
Percent charged for
borrowing money
Finance charge
Cost for borrowing
money
EXAMPLE
Duane buys a TV set for $250.00 on the installment
plan. He agrees to make monthly payments of
$25.00 until the bill for the TV is paid in full.
Step 1
$250.000 Previous Balance
.015 Finance Rate (1% = 0.015)
$3.75000 Finance Charge for first month
Step 2
The finance charge
is the interest that
you pay.
$250.00
+ 3.75
$253.75
Previous Balance
Finance Charge
Balance Before First Payment
Step 3
$253.75
- 25.00
$228.75
Balance Before First Payment
First Month's Payment
New Balance
The new balance becomes the previous balance
for the next month.
Exercise A Fill in this chart to show how Duane will pay for his TV set.
Previous Finance Before Monthly New
Month Balance
Charge Payment Payment Balance
April $250.00 $3.75 $253.75 $25.00 $228.75
May $228.75
3.43
$25.00
June
$25.00
July
$25.00
Aug.
$25.00
Sept.
$25.00
Oct.
$25.00
Nov.
$25.00
Dec.
$25.00
Jan.
$25.00
Feb.
$0.00
Percent Chapter 6
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