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23 February, 18:31

Paul is going to buy a collectible vintage painting from a local art gallery. The painting is priced at $600 in the gallery. The gallery owner does accept credit cards but prefers cash. In fact, he offers to give Paul a 5% discount if he can pay in cash. Paul doesn't have any cash but can get a cash advance on his credit card. His credit card has an APR of 16% on credit purchases and a 32% APR on cash advances. Assuming Paul wants to pay the painting off over 12 months, which of the following is true?

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  1. 23 February, 21:19
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    The right answer for the question that is being asked and shown above is that: " It is cheaper for Paul to buy the painting using his credit card. He will only pay $58 per month on his credit card provider compared to the $62.70 monthly bill if he used cash advance."

    Here's how to solve.

    Given that the Painting priced at $600. If paid using credit card and in installment basis.

    $600 x 16% = $96 interest on credit card balance

    $600 + $96 = $696 total debt

    $696 : 12 months = $58 monthly payments

    If paid using cash from cash advance.

    $600 x 5% discount = $30

    $600 - $30 = $570

    $570 x 32% = $182.40 interest on cash advance

    $570 + $182.40 = $752.40

    $752.40 : 12 months = $62.70 monthly payment
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