Question

You are interested in getting a credit card. You are offered the following two options. A large national bank offers a credit card that costs $150 annually (as a fee), and has a borrowing interest rate of 12%.

Alternatively, a local bank offers a credit card with no annual fee, a borrowing interest rate of 14%, and a 2% rebate on all gasoline and grocery purchases.

What steps would you take to analyze your options? What data or other information would you need to choose an option?

Answer 1

Steps to Analyze the option

1) Large National Bank offer-: Fixed annual fee-: $150

Variable Interest Rate-: 12%

2) Local Bank Offer -: Fixed Annual Fee-: 0

Variable Interest Rate-: 14%.

Rebate on GAsoline & Grocery-: 2%

By looking upfront, Option 1 is looking good, However if Spending is not much & Uses of GAsoline & Grocery is only limited & that too restricted upto (150/2%)= $ 7500, Than option 2 can be considered.

What data or other information would you need to choose an option?

The following information is also needed while evaluating offer-:

1) Spending Amount

2) Nature of spends (Grocery/Gasoline or any other)

3) Any other scheme offered by national bank or local bank.