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
The price of a new TV is \(\pounds690\). It is available on credit agreement by paying a deposit of \(15\%\) followed by 12 instalments of \(\pounds55.85\).
Find the total credit agreement cost 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 \(\pounds690\)
\(= 15 \times \pounds6.90\)
\(= \pounds103.50\)
Now we need to calculate the total of the instalments:
Instalments \(= \pounds55.85 \times 12\)
\(= \pounds670.20\)
We can now find the total credit agreement cost:
Credit agreement cost = deposit + instalments
\(= \pounds103.50 + \pounds670.20\)
\(= \pounds773.70\)
Finally we work out the difference between the credit agreement cost and the cash price:
Extra paid = credit agreement cost - cash price
\(= \pounds773.70 - \pounds690\)
\(= \pounds83.70\)
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 \(\pounds240\)
\(= 20 \times \pounds2.40\)
\(= \pounds48.00\)
Now we need to calculate the total of the instalments:
Instalments \(= \pounds18.50 \times 12\)
\(= \pounds222.00\)
We can now find the total credit agreement cost:
Credit agreement cost = deposit + instalments
\(= \pounds48.00 + \pounds222.00\)
\(= \pounds270.00\)
Finally we work out the difference between the credit agreement cost and the cash price:
Extra paid = credit agreement cost - cash price
\(= \pounds270.00 - \pounds240.00\)
\(= \pounds30.00\)
