Rahm used a payment plan to purchase wood for a home project. The wood he bought cost $500. The clerk at the store offered him this payment plan instead.
| Money Down | Cost per Month for 12 Months |
|---|---|
|$50| $55|
What's the difference in cost between the cash price and the payment plan?
Answer (1)
Calculate the total monthly payments: $55 × 12 = $660 .
Calculate the total cost of the payment plan: $50 + $660 = $710 .
Calculate the difference between the payment plan and cash price: $710 − $500 = $210 .
The difference in cost between the cash price and the payment plan is $\boxed{$210}.
Explanation
Calculate the total cost of the payment plan First, we need to determine the total cost of the wood under the payment plan. The payment plan requires a down payment of $50 and monthly payments of $55 for 12 months.
Calculate total monthly payments To calculate the total cost of the payment plan, we add the down payment to the total monthly payments. The total monthly payments are calculated by multiplying the monthly payment amount by the number of months: T o t a l M o n t h l y P a y m e n t s = M o n t h l y P a y m e n t × N u mb er o f M o n t h s T o t a l M o n t h l y P a y m e n t s = $55 × 12 = $660
Calculate the total cost of the payment plan Now, we add the down payment to the total monthly payments to find the total cost of the payment plan: T o t a l C os t o f P a y m e n t Pl an = Do w n P a y m e n t + T o t a l M o n t h l y P a y m e n t s T o t a l C os t o f P a y m e n t Pl an = $50 + $660 = $710
Calculate the difference in cost Next, we need to find the difference between the total cost of the payment plan and the cash price of the wood, which is $500. D i ff ere n ce = T o t a l C os t o f P a y m e n t Pl an − C a s h P r i ce D i ff ere n ce = $710 − $500 = $210
Final Answer Therefore, the difference in cost between the cash price and the payment plan is $210.
Examples
Understanding payment plans can help you make informed decisions when purchasing items. For example, when buying a car, you might be offered a loan with monthly payments. Calculating the total cost of the loan, including interest, and comparing it to the cash price can help you determine if the payment plan is a good deal. This ensures you know the actual cost and can budget accordingly.
