Louie is currently at a store looking to buy a grill for $ 89 $89dollar sign, 89. Louie has $ 20 $20dollar sign, 20 in cash. He gets paid weekly and would like to make small payments each week. He wants to ensure he gets the grill of his choice before it sells out. He does not need the grill till the summer ( 6 66 months from the purchase). Listed below are different methods of paying for the grill. Method Terms Total Cash None $ 89 $89dollar sign, 89 Credit card 29.99 % 29.99%29, point, 99, percent APR, $ 25 $25dollar sign, 25 minimum monthly payment $ 89 + $89+dollar sign, 89, plus interest Layaway $ 4 $4dollar sign, 4 set up fee, $ 5 $5dollar sign, 5 payment minimum $ 93 $93dollar sign, 93 Based on the information given, which payment method works best for Louie?
The best payment method for Louie would be to pay in cash. Since he has $20 in cash, he can cover a portion of the cost upfront and save the rest until he has enough to buy the grill. This way, he will not have to pay any interest or additional fees associated with credit card or layaway options. By choosing cash, Louie can avoid incurring any extra costs and can have the grill before the summer without any financial burden.
To determine which payment method works best for Louie, we need to compare the different options and consider his preferences and financial situation.
1. Total cash: This option requires Louie to pay the full amount of $89 upfront. Since he only has $20 in cash at the moment, this method is not feasible for him.
2. Credit card: This option allows Louie to spread out his payments over time. However, there is an interest rate of 29.99% APR. Louie also needs to make a minimum monthly payment of $25. While this method provides flexibility, it would result in additional interest charges and might not be the most cost-effective option.
3. Layaway: With this method, Louie pays a $4 setup fee and makes minimum payments of $5. The total cost would be $93. Since Louie wants to secure the grill before it sells out and he doesn't need it for another 6 months, this option allows him to make small payments while ensuring he gets the grill he wants. Additionally, there are no interest charges associated with layaway.
Based on these options, the layaway method seems to work best for Louie, considering his financial situation, the timeline, and his goal of securing the grill without incurring high interest charges.
To determine which payment method works best for Louie, we need to compare the total cost of each method and consider his financial situation.
1. Cash: Louie has $20 in cash, which is not enough to directly purchase the grill for $89. Since he wants to make small payments each week, this option is not feasible without saving a significant amount of money first.
2. Credit card: The credit card option has an APR of 29.99% and a minimum monthly payment of $25. To calculate the total cost, we need to consider the interest charged over the 6-month period.
Assuming Louie only pays the minimum monthly payment, the remaining balance carries over with interest. The total interest paid can be calculated using the formula: Total Interest = Principal * (1 + APR)^n - Principal, where n is the number of compounding periods (6 months in this case).
Total Interest = $89 * (1 + 0.2999/12)^(6*12) - $89
Total Cost = $89 + Total Interest
3. Layaway: The layaway option has a $4 setup fee and a $5 minimum payment. Assuming Louie makes the minimum payments over the 6-month period, the total cost can be calculated as follows:
Total Cost = $89 + ($5 * 6) + $4
By evaluating the total cost for each option, Louie can determine which payment method is the most advantageous for him.