Aya and Tarek have good news to share. They recently went ahead and got married. Now that Aya and Tarek are married and have been together for some time, they realize that they need to make some adjustments to the way they are living. Up until this time, Aya has not owned or used a credit card. Aya has never seen the need to borrow money. Tarek, on the other hand, has been using credit cards since high school. This means that Aya does not have a credit report or a credit score. Tarek does have a credit score (based primarily on making timely payments against student loans and credit cards), and as far as Tarek knows, the score is high. 

Help Aya and Tarek answer the following questions about taking out loans and managing borrowing.

a. Aya is thinking about purchasing an electric bicycle, as this mode of transportation might be a good alternative to taking the bus to work each morning. Aya found a bike that is appealing. The problem is that the bike costs $5,000. However, the bike shop has a financing special that would make the bike more affordable. Aya can apply for a 5-year loan. The interest rate on the loan is 11%. If Aya does decide to purchase the bike using the special financing, how much will the monthly payment be? Also, how much of the first loan payment will be interest versus principal?

b. Explain why Aya does not have a credit score at this time. Also, how can Tarek’s credit score be increased.

c. Aya feels it is time to get a credit card. The plan is to use the credit card primarily for emergencies and to pay for travel related to work (Aya will receive a reimbursement for any such expenses). The problem is that without a credit report or existing credit score, Aya is finding it difficult to get approved for credit. How can Aya go about getting a credit card?

d. Let’s say that Aya applies for a credit card and receives the following offer: XYZ credit card with a $2,500 credit limit, a 12% APR, and a minimum payment of 4% calculated on any outstanding balance or $25 (whichever is greater). If Aya accepts the offer, spends $1,000 on the credit card immediately, and then does not spend any more and begins to make the minimum required monthly payment, how many years will it take to pay off the loan, assuming that Aya makes no more purchases?