3.2 Credit and Debt Management (a)Credit → Contractual agreement between the supplier and the consumer. (b)Debt→ An amount that has been borrowed but has not been settled. (c)Personal budget → The estimated income and expenditure of an individual for a given period. How to manage credit card and debt wisely? ➔ Need to settle the debt payment within the period stipulated by the bank to enjoy interest free period. ➔ Pay the outstanding balance listed on the credit card statement. ➔ The minimum amount paid by the credit card holder provides opportunity for the bank to charge interest on the balance and may also incur late payment charges. ➔ Pay within the cash discount period for payment of debts.
Advantages of Credit Card →Credit card holders can enjoy a reward system in the form of cash rebate or point redemption. →Does not require us to carry a lot of cash. →Easy and efficient payment method. →Convenience of buying goods and services online. Disadvantages of Credit Card →Incur changes such as annual fees, finance charges, cash advance interest charges and late payment charges. →Overspending →Some stores do not accept credit payment. Credit card Holders ➔ Must pay MINIMUM PAYMENT 5% of the total balance of the credit card or MINIMUM of RM50. ➔ Annual interest rate between 15% and 18%. ➔ LATE PAYMENT 1% or ATLEAST RM10.
Example 1 Calculate the minimum payment due in the following credit card statement (a) Current amount = RM5400 (b) Current amount = RM7500 Example 2 The current balance in Mr Kamal’s credit card statement shows the remaining RM4400 in January .Credit card issuers charge financial charges on outstanding balance at 15% per annum. (a) Complete the following schedule if Mr Kamal pays (i) RM800 Mon th Current balance Monthly payment Financial charges Balance On the stateme nt 1 4400 4400-800=3600 3600 X 15 100 x 1 12 = 45 3600 + 45 = 3645
2 3645 3645 -800 = 2845 2845x 15 100 x 1 12 =35.56 2845 + 35.56 =2880.56 3 2880.56 2880.56- 800=2080.56 2080.56 x 15 100 x 1 12 =26 2080.56+ 26 = 2106.56 4 2106.56 2106.56- 800=1306.56 1306.56x 15 100 x 1 12 = 16.33 1306.56 + 16.33=13 22.90 5 1322.90 1322.90- 800=522.90 522.90 x 15 100 x 1 12 = 6.54 522.90+6. 54 = 529.44 (ii) RM1200 Mon th Current balance Monthly payment Financial charges Balance 1 1200 4400-1200 = 3200 3200 x 15 100 x 1 12 40 3200+40= 3240 2 3240 3240- 1200=2040 2040 x 15 100 x 1 12 = 25.50 2040+25. 50=2065. 50 3 2065.50 2065.50- 1200=865.50 865.50x 15 100 x 1 12 = 10.82 865.50+1 0.82=876. 32 4 876.32
Example 3 Mr Afiq receive his credit card statement for January 2019 from Bank Sejahtera. The statement shows that Mr Afiq had a current amount (outstanding balance ) RM5200.It is assumed that Mr Afiq did not use his credit card in February. (a) What is the minimum payment to be paid ? (b) If he only makes a minimum payment for January and the statement date is 15 days from the expiry date of the interest free period, what is the balance shows in his February statement? (c)If he missed his payment for January, what is the balance shown in February statement?
Example 4 Mariam made a payment of a handbag cost RM600 using credit card in September .She did not make any repayment and the statement date was 15 days from the due date of interest free period . Given the finance charge rate and the late payment charge rate is 18% per annum and 1% (or at least RM10) of the outstanding balance respectively. Calculate the total outstanding balance in October statement. Example 5 Eng Kiat spent RM1200 using credit card in April . He only made minimum repayment of RM60 and the statement date was 15 days from the due date of interest free period .Given the finance charge rate and the late payment charge rate is 18% per annum and 1% of the outstanding balance respectively. Calculate the total outstanding balance in May Statement.
Example 6 Rina and Chong bought each a computer with a cost RM2800 in June. Rina paid with credit card while Chong paid by cash.Rina forgot to make repayment and the statement date was 12 days from the date of interest free period. Given that the finance charge rate and the late payment charge rate is 18% per annum and 1% of the outstanding balance respectively. (a) Calculate the total outstanding balance in July statement for Rina. (b) If Rina paid the total outstanding balance in July, calculate the difference in payment that made by Rina and Chong.
Example 7 Mrs Lim bought a car worth RM80000 on credit She pays 10% down payment and the balance is payable in installments over 6 years. The flat interest rate imposed by the bank is 4% per annum. What is the amount of repayment and monthly installment payable by Mrs Lim? Example 8 Mr Azlan obtained a personal loan of RM10000 from bank Rakyat with an interest rate of 4% per annum.The repayment period is 7 years. What is the monthly installment to be paid by Mr azlan?
Example 7 Encik Hamid obtained a personal loan RM10000 from Bank Rakyat with an interest rate of 6% on the balance. The repayment period is 7 years while the monthly installment is RM150.Calculate the total amount of interest payable by Encik Harith for first three months.
Mr Winson is a teacher with a monthly income of RM2800. He decides to buy a new car to commute to work. He contacts two banks to get a loan of RM40000.In addition, he needs RM1500 to cover other expenses every month. The following are loan packages offered by two banks to Mr Winson. Loan details Bank A Bank B Amount RM40000 RM40000 Payment period 9 years 6 years Interest rate 4.5% 5% Guarantor Not required Required Suggest Mr Vincent which bank is better suited for his car loan. State your reasons.