Question

The monthly finance charge on a credit card is $ 1.5\% $ of the previous month’s outstanding balance. If Lokesh had an outstanding balance of $ {\rm{Rs}}\;30,000 $ last month, what was the finance charge he paid? Do you think it’s a correct practice to use a credit card? Discuss it with your teacher.

Answer 1

Hint: The best way to use credit is to avoid finance charges. This can be achieved by maintaining the balance in the account fully and on time in each and every month. In order to find the required finance charge we will find the $ 1.5\% $ of the outstanding amount of the Lokesh for the last month that is $ {\rm{Rs}}\;30,000 $ . Then according to the finance charge we will conclude whether it is the correct way of using a credit card or not.

Complete step-by-step answer:
The outstanding balance of the Lokesh for the last month is $ {\rm{Rs}}\;30,000 $ .
The Finance charge is the $ 1.5\% $ of the outstanding balance.
To find the finance charge that he paid we will need to find the $ 1.5\% $ of the outstanding amount $ {\rm{Rs}}\;30,000 $ . This can be expressed as:
\[{\rm{Finance charge}} = 1.5\% \;{\rm{of}}\;{\rm{Rs}}\;30,000\]
On simplifying the above expression, we get the value as,
 $ \begin{array}{c}
{\rm{Finance charge}} = \dfrac{{1.5}}{{100}} \times {\rm{R}}s\;30,000\\
 = {\rm{Rs}}\;\left( {1.5 \times 300} \right)\\
 = {\rm{Rs}}\;450
\end{array} $
Therefore, the required finance charge will be $ {\rm{Rs}}\;450 $ .
We can conclude from the finance charge that this is not the correct way of using credit cards since in order to use credit cards correctly we should avoid the finance charge. This can be done by maintaining the balance in the account.

Note: Finance charge is the charge which is imposed on the customer when the customer does not pay the amount on time. In other words, Finance charges involve the interest imposed on debt. In this question it is 1.5% and it is mentioned that it is based on the outstanding balance of last month. But this can vary from bank to bank. We should always try to avoid finance charges by paying the amount on time.