Question

Select the most likely outcome of making only on-time minimum payments to a credit

Answer 1

Option B is correct.

On-time minimum payments would include the interest payment, and the majority of the credit card balance would still be outstanding.

Further Explanation:

Credit card:

Generally, Credit card is issued by financial institutes such as banks. Credit card is a plastic card that allows the cardholders to borrow the funds from the respective bank and spend the funds as per their requirements. A credit card can be used for the purchase of goods and services. Generally, a credit card has a specific limit. It is known as a line of credit (LOC). The cardholder can withdraw or use the funds up to the LOC. The cardholder has to pay the borrowed amount along with interest on the borrowed funds after a specific period of time, which is defined and stated at the time of issuing the credit card.

The outcome of making only on-time minimum payments to a credit card with a balance for an entire year:

On-time minimum payments would include the interest payment, and the majority of the credit card balance would still be outstanding.

On-time minimum payment refers to the minimum payment of the outstanding amount of the credit card balance. It includes the interest and the principle of the borrowed funds. Minimum payments consist of a minor portion of the outstanding credit card balance and majorly the interest on the outstanding borrowed funds.

When the cardholder only pays the minimum amount, the outstanding balance of the credit card would accumulate, and the bank would charge interest on the accumulated credit card balance. So, the credit card interest would increase as the cardholder would only pay the minimum amount each time, and the outstanding loan amount would accumulate, and the interest would also be accumulated.

Thus, on-time minimum payments would be mostly utilized towards the interest payment, and the majority of the credit card balance would still be outstanding. The interest would be higher because it would be calculated on the accumulated credit card balance.

Learn more:

1. Common credit card fee

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2. Charging fee in case of credit card

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3. Consequences of non-payment of monthly credit card payment

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Answer details:

Grade: Senior School

Subject: Business Studies

Chapter: Money and Banking

Keywords: Credit card, Charges, Credit card charges, Credit card company, minimum payments, the entire year, entire year, 12 on-time minimum payments, ultimately paid off, towards paying interest, Majority of the balance, from a year ago, reward, owner interest rate, 12 consecutive, on-time payments, credit score, suffer, minimum fees, doesn't count, payment history, portion.

Answer 2

The answer is "B. Your payments will have gone mostly towards paying interest and you will still owe the majority of the balance that you had from a year ago."

At the point when this happen your profile would be appear as monetarily hazardous by other money related foundation in the market.  

This would make your credit score to tumble down, and would make it extremely hard for you to acquire some other type of advance later on.  

When you make just the minimum installment on your credit card, you're giving yourself impermanent help. But on the other hand you're focusing on paying more in intrigue charges later. That exchange off can get you into genuine budgetary inconvenience after some time, particularly if your card charges a high interest rate.