Post on 31-Jul-2015
Neeta will expect that Ram will return the pencil the next day
How many pencil/s will Ram have to return ?
Neeta will expect only one Pencil
And they become good friends
What would have happened if Ram hadn’t returned the pencil?
Neeta would be angry with Ram
Not only that, she will be telling every other friend about Ram
No one will likely to give any thing to Ram
Credit Card works similar
You go to a shop, buy some thing and no money with you
The bank is your friend and gives you money when you are in need
But, Bank does not give it to you, but gives to shop keeper on behalf of you
Whatever you borrow, you will have to return in 30 days (or some time less number of days)
If you don’t return
Banker becomes angry
He not only tell other banks not to give you any more money, but also charges interest
What is the formula for applying interest?
•A = P (1+r)n Banker will charge interest in months and not years
Every month upto 3% interest will be charged if money is not returned
If your borrow Rs 100 on credit Card?
What is the interest for one month if the money is not returned on due date, interest rate charged is 3%?
Rs 3
What is the interest if money is not returned even after 2 months, interest rate charged is 3%?
Rs 3
Or Rs 3.09
What if you don’t return for 1 yearMonth Borrowe
dInterest @ 3% if money not returned by end of month
Total loan
1 Rs 100 Rs 3 Rs 103
2 Rs 3.09 Rs 106.09
3 Rs 3.18 Rs 109.27
4 Rs 3.28 Rs 112.55
5 Rs. 3.38 Rs 115.97
6 Rs 3.48 Rs 119.40
7 Rs 3.58 Rs 122.98
8 Rs 3.69 Rs 126.68
9 Rs 3.80 Rs 130.47
10 Rs 3.91 Rs 134.39
11 Rs 4.03 Rs 138.42
12 Rs 4.15 Rs 142.58
Credit Cards offer you an interesting option
Pay only 5% of the loan
What happens if you pay only 5% of the loan?
Use a Spreadsheet to find out
MonthAmount Borrowed
5% Repaid Balance Loan 3% Interest Loan Balance
Total amount paid
1 100 5 95 2.85 97.85 232.41136432 4.89 92.96 2.79 95.753 4.79 90.96 2.73 93.694 4.68 89.00 2.67 91.675 4.58 87.09 2.61 89.706 4.49 85.22 2.56 87.777 4.39 83.39 2.50 85.898 4.29 81.59 2.45 84.049 4.20 79.84 2.40 82.23
10 4.11 78.12 2.34 80.4711 4.02 76.44 2.29 78.7412 3.94 74.80 2.24 77.0413 3.85 73.19 2.20 75.3914 3.77 71.62 2.15 73.7715 3.69 70.08 2.10 72.1816 3.61 68.57 2.06 70.6317 3.53 67.10 2.01 69.1118 3.46 65.65 1.97 67.6219 3.38 64.24 1.93 66.1720 3.31 62.86 1.89 64.75
Exercise – Using Spread sheet
If you borrow Rs 1000 on your credit card, which charges 3% interest every month and you pay only 10% of the loan outstanding, how many month will it take to repay Rs 1000 and how much will you repay totally?
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