Have a very important question! Please Read?

Question

If I purchase a guitar that cost me around $800.00 with a credit card that has a limit of a $1,000, and send payments of $100.00 each month will I still pay interest or not?

I know the payments will be around $25 or $30 a month but if I send in $100.00-150 each month will I still pay interest on it or not? Can someone please explain it to me in detail please. Any advice is appreciated.

Thanks.

Tim

I really want this guitar and I just want to get your thoughts on it.

Answer 1

The short answer is yes.

Most credit cards charge interest on the unpaid balance.

Say you buy your guitar at $800.

You make your first monthly payment and assume all of it is applied to principle.

Now, you owe 700. Over the next thirty days interest will accrue at, let's say for ease of calculation, 1%.

That means out of your next 100 dollar payment, 7 dollars or 1 % of 700 is applied to interest and 93 dollars is applied to principal.

Now you owe 607 dollars. The interest for the next time will be 6.07, so 93.93 will be applied to principal.

So at a 12 % annual rate or 1% a month, you will end up paying something less than 70 dollars in interest.

If the interest rate is higher, you will pay more. At a rate of 2% a month, which is really high, you will pay less than 140 dollars in interest (if you know how to use excel you can figure this out quite readily). These numbers are approximations, but they are upper limits.

Look at it this way, the interest you pay is essentially rent you pay for the pleasure of using the guitar while you make the payments.

Instead of saving for 10 months during which time you will not enjoy the guitar.

Of course, this assumes you are not already deep in debt.

Hope this helps.

Answer 2

You will pay interest on anything that you charge to a credit card unless you pay off the balance before the billing cycle ends. However, if you send in $100 - $150 per month versus the $25 to $30 minimum payment, you will end up paying much less in interest in the long run.

Here are some numbers for you:

If you pay only the minimum payment on a card with an $800 balance and an 18% interest rate, it will take you 131 months to pay off the balance. Over that 131 months, you will pay an additional $815 in interest.

If you pay $150 per month on that same card, you will pay off the debt in six months and only pay $40 in interest.

Good luck and rock on!

Answer 3

Interest will be accrued on any remaining principal at the end of each month, so even paying $100-$150 a month, interest will still be accrued. By paying as much as you intend, there will be far less interest accrued due to the fact the principal will be paid faster, and there will be much lower levels of principal that will be accruing that interest.

Example:

Assume your credit card is 12%, or for simplicity, 1% accrued monthly on principal remaining.

You make a $1200 purchase.

Here is what you are looking at between a $60 monthly payment, and a $120 monthly payment

$60 a month

01: 1200-60=1140x1%=$11.40 interest
02: 1140-60=1080x1%=$10.80 interest
03: 1080-60=1020x1%=$10.20 interest
............
19: 120-60=60x1%=$0.60 interest
20: 60-60=0 principal remaining

Total Interest Accrued: $114, which will extend payments 2 more months

$120 a month

01: 1200-120=1080x1%=$10.80 interest
02: 1080-120=960x1%=$9.60 interest
............
10: 120-120=0 principal remaining

Total Interest Accrued: $54, which will extend payments 1 more months

Answer 4

Yes, at the end of the monthly closing cycle of you credit card company, they will charge you interest on your balance. Interest rates on credit cards vary widely, so how much you will pay in interest depends on the rate associated with your card.

Answer 5

u have to pay interest on any unpaid moneys that are left over. yet if u pay 100 to 150 each month u will have to pay less interest because u have less money left to pay i hope this helped u!!!

Answer 6

You will most certainly pay interest until it's paid off. That's how credit cards work - they lay the money out and then they hit you with interest. They don't lay money out for nothing.

Answer 7

You will pay interest on the unpaid balance each month.