Using the bank loan to pay off the credit card debt

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Reference no: EM131445361

You have an outstanding balance on your credit card of $10,000. You can pay off the balance if you make 36 monthly payments of $350, starting next month.

Alternatively, you can take out a bank loan today for $10,000 and pay off the credit card debt. The bank loan is paid with 36 monthly payments, starting next month.

The bank loan charges 5% APR, compounded monthly. If your savings account earns 4% APR compounded monthly, how much do you save in present value terms by using the bank loan to pay off the credit card debt?

Reference no: EM131445361

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