Paul is going to buy a collectible vintage painting from a local art gallery. The painting is priced at $600 in the gallery. The gallery owner does accept credit cards but prefers cash. In fact, he offers to give Paul a 5% discount if he can pay in cash. Paul doesn't have any cash but can get a cash advance on his credit card. His credit card has an APR of 16% on credit purchases and a 32% APR on cash advances. Assuming Paul wants to pay the painting off over 12 months, which of the following is true?

The right answer for the question that is being asked and shown above is that: " It is cheaper for Paul to buy the painting using his credit card. He will only pay $58 per month on his credit card provider compared to the $62.70 monthly bill if he used cash advance."

Here's how to solve.

Given that the Painting priced at $600. If paid using credit card and in installment basis.

$600 x 16% = $96 interest on credit card balance

$600 + $96 = $696 total debt

$696 : 12 months = $58 monthly payments

If paid using cash from cash advance.

$600 x 5% discount = $30

$600 - $30 = $570

$570 x 32% = $182.40 interest on cash advance

$570 + $182.40 = $752.40

$752.40 : 12 months = $62.70 monthly payment