Question

Sharon purchased a sprinkler system for $1,950 using a six-month deferred payment plan. The interest rate after the introductory period is 23.99%. No down payment is required, but there is a minimum monthly payment of $25. What is the balance at the beginning of the seventh month if only the minimum payment is made each month during the introductory period?

Answer 1

okay first you have to figure out how much sharon paid for six months so that would be
25 x 6

Answer 2

@moser90 Are these the options:

A $2,045.91
B $1,950.00
C $2,195.91
D $1,800.00

Answer 3

I don't know @hunterallen811 never responded

Answer 4

@moser90 The following is not my work but makes sense intuitively. Would you read it and see what you think? Also, I found an online calculator for deferred interest which I want to check out.
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23.99% (= 2% per month). 2% of 1,950 = 39 month in interest. But you're paying 25 / month. So, the monthly balance increases by 14. 7 months of increases of 14 = 98.
1950 + 98 = 2048. That's really, really, really close to "A" = 2045.91

Answer Source: http://tinyurl.com/amlg4cm

Answer 5

but see interest don't accure until after six months so you would have to subtract that from the payments and then the balance is what you add interest to
so it would be
1950-150 = 1800 x 23.99% =

Answer 6

@moser90
What baffles me about the stated problem is that the term of the loan is not stated.
How long does Sharon want to pay for this sprinkler system?

Answer 7

@Directrix I think your just letting your brain worked to hard lol

Answer 8

@moser90 --> lol is right.

What do you say the answer is?

Answer 9

I don't know maybe I didn't let my brain work enough because now you have my rethinking it

Answer 10

okay I think I have it reread this part right here it is not telling us to add the interest it is before interest is added
What is the balance at the beginning of the seventh month if only the minimum payment is made each month during the introductory period?
the first six months are interest free so the balance at the beginning of the seventh month would be 1800
do you see it to?

Answer 11

@Directrix

Answer 12

@moser90 I hear what you are saying but I'm wondering about deferred interest. I don't think it is the same as interest free. (These credit companies are slick when tricking consumers.) I think Sharon has to pay the interest but is given 6 months before she has to pay interest on the first six months and then the remainder of the loan. At this point, I say she should get the water hose and water the lawn herself. :)

Hey, will you buzz over to http://openstudy.com/study#/updates/50fb3a5be4b0860af51e3f37 and look at the work there. Let me know what you think.

Somebody posted a formula.
I'm going to attempt to verify it.

Answer 13

@Directrix
I think that would make it make more sense because it is future value

Answer 14

I think the deferred is just a word used to remind you to subtract the payments

Answer 15

Read this "stuff," please. :)

Answer 16

Okay so if she missed her payments then the $25 dollars would be added to the balance

Answer 17

Now, I'm thinking that deferred interest may be zero interest if the debt is paid off in six months, as in the posted problem.
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Check out this:

Deferred interest, same as cash: Play the game right or lose


By Allie Johnson



It sounds too good to be true: Buy now, pay later. However, deferred interest deals offered by big-box retailers, furniture stores, and even online merchants can be tricky, triggering high interest and hefty fees. Consumers who use these deals wisely, though, can save big.

"If you follow the terms to the letter, these can be great deals," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a coalition of agencies that provide financial counseling and debt management. "You can play this game to your advantage."

Consumers who want to benefit from deferred interest deals should be sure to read the terms carefully, make a plan to make timely payments, and stick to it. That's what suburban mom Donna Maria Coles Johnson did when she and her husband bought a house near Asheville, N.C., and needed a new washer and dryer. She went to Sears, spotted a no-interest-for-12-months offer and applied for the store credit card. "I thought $2,500 is a lot to shell out at once, so I just put $1,200 down," Johnson says. "I paid on time and never charged anything else on the card. It worked like a charm."

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Read more: http://www.creditcards.com/credit-card-news/deferred-interest-pros-and-cons-1267.php#ixzz2Jnrlvjzt

Answer 18

"If it says no payments are due, you should totally disregard that and make some payments," says Linda Sherry, director of national priorities at the national advocacy group Consumer Action. "You should be using this time to pay down the principal."

That's because -- and here's the part that snags many consumers -- if you don't pay the account down to $0 by the required date, which can be a few days or weeks earlier than that promised six months to a year, the credit issuer can charge interest on the full purchase amount for the entire time period. When interest is charged, it's usually much higher than that of a standard credit card -- often between 20 percent and 26 percent. For example, Home Depot's card has a 22.99 percent rate that jumps to a default rate of 26.99 percent if the required minimum payment is not paid and remains unpaid on the following due date, or if a payment check bounces. Best Buy offers two plans with variable interest rates of 20.99 percent or 24.34 percent, with default rates as high as 29.99 percent.


Read more: http://www.creditcards.com/credit-card-news/deferred-interest-pros-and-cons-1267.php#ixzz2JnsIPPOS

Answer 19

So that answered your question of why deferred so she could have paid it off because the six month and no interest would have been added

Answer 20

@moser90 The problem does not state what Sharon did but assuming the paid all the debt the day before the end of the 6 month deferred period, your answer of $1800 would be correct.

Inherent in the problem statement should be that Sharon paid for the sprinkler system at the end of the 6 months. Zero interest. And, $1800 due at the end of the six months.

Answer 21

Yeah I thought the question was a little confusing but in the other post you put on here she said she guessed an the answer was 2045.91 reread it

Answer 22

I'll do that and also link those other two posts to this one.

That online calculator for deferred interest asks for the term of the loan which would be 6 months if Sharon paid the monthly $25 and then the $1800 at the end of 6 months.

Answer 23

@moser90 ^^^ above

Answer 24

I have always hated word problems sometimes they give you too much and sometimes not enough

Answer 25

@moser90 I don't relish this type of word problem but try not to get crazy and foam at the mouth or whatever. But, we are dealing here with terms with definitions we do not know. No interest and deferred interest don't seem that they should be the same. Apparently, they are.

These credit people tend to be tricky. Many of them charge the interest even if the borrower followed the rules. That happened last month to a friend. She called up the store manager who flipped her to a credit card company. Anyway, she did not pay the interest.

Enough of that.

Shall we settle on $1800 for the answer? It seems right to me.

Answer 26

With everything you found it sounds right