Calculating the price of credit agreements
Often, using a credit agreement you pay a deposit first and the remainder by monthly instalments. To calculate the total credit agreement price you have to add together the deposit and the total of all of the instalments.
Example
A new TV costs \(\pounds690\) cash. It is available on credit agreement by paying a deposit of \(15\%\) followed by 12 instalments of \(\pounds55.85\).
Find the total credit agreement price and the extra that you would pay (over the cash price) using a credit agreement.
First we calculate the deposit:
\(Deposit = 15\%\,of\,\pounds690\)
\(= \frac{15}{100}\) of \(\pounds690\)
\(= 15 \times 6.90\)
\(= \pounds103.50\)
Now we need to calculate the total instalments:
Total instalments \(= 55.85 \times 12\)
\(= \pounds670.20\)
We can now find the total credit agreement cost:
Credit agreement cost = deposit + total instalments
\(= 103.50 + 670.20\)
\(= \pounds773.70\)
Finally we work out the difference between the credit agreement price and the cash price:
Extra paid = credit agreement cost - cash price
\(= 773.70 - 690\)
\(= \pounds83.70\)
Now try this question.
Question
A DVD player costs \(\pounds240\) cash.
It is available on a credit agreement by paying a deposit of \(20\%\) followed by 12 instalments of \(\pounds18.50\).
Find the extra paid by credit agreement.
First we calculate the deposit:
\(Deposit = 20\%\,of\,\pounds240\)
\(= 20 \times 2.40\)
\(= \pounds48.00\)
Now we need to calculate the total instalments:
Total instalments \(= 18.50 \times 12\)
\(= \pounds222.00\)
We can now find the total credit agreement cost:
credit agreement = deposit + total instalments
\(= 48.00 + 222.00\)
\(= \pounds270.00\)
Finally we work out the difference between the credit agreeement price and the cash price:
Extra paid = credit agreement cost - cash price
\(= 270.00 - 240.00\)
\(= \pounds30.00\)