How much are the monthly repayments for financing

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Reference no: EM132791770

Consumer loan

Tisha really enjoys her daily workouts at the gym. However due to current restrictions the gym must remain closed. Tisha has decided to purchase some equipment for a home gym. The total cost for the equipment is $4,000. She has the following two loan options:

1. Financing from the XY Equipment Company. The financing terms are 10% p.a. compounded monthly with fixed monthly repayments over a 2-year term.

2. Use her AB credit card which charges 16% p.a. compounded daily with flexible payments above the $80 minimum amount.

Tisha pays off the AB credit card balance every month. In the past, she has used the AB credit card (credit limit $10,000) for purchases outside of her normal spending. When she does use the AB credit card for these purposes, she works out a payment plan based on her available cash flow after paying her monthly expenses with the goal of trying to pay off the balance as quickly as possible. Based on her estimate of current spending, Tisha can put between $350 and $450 a month towards the home gym equipment.

Required:

Problem a) How much are the monthly repayments for option #1, financing from the XY Equipment Company?

Problem b)
Calculate the Equivalent Annual Rate (EAR) for both loan options?

Problem c) Which loan option do you recommend to Tisha and why?

 

 

Reference no: EM132791770

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