On a credit card, minimum monthly payments are often about 2% of the balance. If no interest were charged, how long would it take to pay off a loan when payments are 2% of the balance?
With no minimum, almost infinite time. Lets get to when he owes ten cents. Two percent of that is .002 cents. The issue is how does he pay that fraction of a penny.
To calculate how long it would take to pay off a loan when the minimum monthly payment is 2% of the balance and there is no interest charged, you need to determine the number of payments required to reach a balance of ten cents.
Since the minimum monthly payment is 2% of the balance, we can calculate the minimum payment in percentage terms. For example, if the balance is $100, the minimum payment will be $2 (2% of $100).
If we assume that the balance decreases by the exact minimum payment amount every month, we can calculate the number of payments required to reach a balance of ten cents.
Let's break down the process:
1. Start with a balance of ten cents.
2. Calculate 2% of the balance, which is 0.002 cents (2% of ten cents).
3. If the minimum payment is 0.002 cents, it would take an infinite number of payments to completely pay off the balance. This is because the minimum payment is less than a penny, which means it is not practical to pay off such a small amount.
While it's true that having a balance of 10 cents and a minimum payment of 0.002 cents raises the issue of fractional pennies, in real-world scenarios, credit card companies usually round up the minimum payment to the nearest penny. So, if the minimum payment were rounded up to one penny, you would be able to pay off the balance.
Therefore, in this simplified example, if you round up the minimum payment to one penny, it would take just one payment to pay off the 10 cent balance.