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Paul's credit card closes on the 9th of the month, and his payment is due on the 30th. If Paul...

Question:

Paul's credit card closes on the 9th of the month, and his payment is due on the 30th. If Paul purchases a stereo for $300 on June 12th, how many interest-free days will he have? When will he have to pay for the stereo in full in order to avoid finance charges?

Credit Card:

A credit card would allow the cardholder to make purchases up to the given credit limit. The finance charge on a credit card will be based on daily balance.

Answer and Explanation:

Given information:

  • Closing date: 9th
  • Payment due date: 30th
  • New purchase: $300

Since the new purchase was made after the closing date, it will be included in the next cycle, which is from June 10th to July 9th. Thus, this purchase will not be charged any interest from June 12th to July 30th, which is 49 days.

To avoid the finance charge, the payment should be made on July 30th.


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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