Tom has offered to sell Julian his motorcycle for $1,200. Julian knows this is a very good deal, since the same motorcycle can be purchased at the dealership for $1,800. Since Julian doesn’t have $1,200 and Tom does not accept credit cards, they both think a cash advance might be a good idea. Julian’s credit card company can offer him a cash advance for the $1,200 he needs at an interest rate of 26%. He would then pay off the balance in 24 months. Should Julian use the cash advance to purchase the motorcycle?
Answer
A
No. Julian would be paying too much in interest to warrant using a cash advance.
B
Yes. Even with the interest, the total cost of the motorcycle would be less than at the dealership.
C
Yes. The interest rate on the cash advance is low. Julian will not have to pay much interest on the cash advance.
D
No. The high interest rate on the cash advance would make the purchase of the motorcycle almost twice than the price at the dealership.