1 answer

Please state summary/thesis for this case study, strenghts& weakness & advantage and disadvantage of other cards....

Question:

Case Study: Lisas Rewards Do the benefits of a credit card ever justif costs and risks? Background Lisas dream has just com
work 10 hours per week and estimates that she can earn at least $10 per hour since she has experience. All in all, Lisa is re please state summary/thesis for this case study, strenghts& weakness & advantage and disadvantage of other cards.
Lisas parents were a bit more hesitant; they were by no means financial experts, but all the numbers Lisa showed them struck
Recommendations You are Lisas parents. How would you advise Lisa to proceed? What factors would you consider when deciding b
Case Study: Lisa's Rewards Do the benefits of a credit card ever justif costs and risks? Background Lisa's dream has just come true. As a teenager growing up in Los Angeles, California, she has always dreamed of moving to New York City to pursue dancing and choreog- raphy in musical theater, and she just got notification that she was accepted to New York University's dance program with a generous scholarship. She is thrilled to be able to see this dream become a reality, although both she and her parents are a little saddened by the large distance that will be between them. The family can afford to visit Lisa once per year and to pay for Lisa to come back to L.A. for either the holiday break or the summer break, but not both. Lisa has always been a pretty good kid-she's responsible, maintained a solid A-aver- age through high school, and has even managed to save about $2,000 to help pay for living expenses during college by working a part-time job at GameSpot. She does have a weakness for video games, so most of her paycheck goes to support that addiction; luckily, the employee discount helps her stretch her game dollars farther. Lisa is planning to open a checking account with the money she has saved, and is thinking of getting a part-time job in New York to help pay living expenses to offset the need for loans. She will not do so, however, until at least midterms of the first semester have passed, so she knows how much time her academic coursework and additional dance practice will require. If she's doing well and has enough free time, she plans to
work 10 hours per week and estimates that she can earn at least $10 per hour since she has experience. All in all, Lisa is really happy and her family is very supportive of daughter. Still, she wishes New York were just a little closer to L.A. so she could visit home a bit more often. Dilemma One day in July, as Lisa was nostalgically packing up her childhood belongings and leafing through her high school yearbook, a piece of mail arrived that offered a solution. OrangeJet Airlines, which runs frequent and relatively inexpensive flights between Los Angeles and New York City, seemed to be offering her a credit card. Lisa was confused, because she didn't think OrangeJet was a credit card company, but the letter also said something about Visa, which she recognized as a brand of cards, and also had the name of a bank that she didn't recognize. She hadn't been planning to get a credit card because she heard that it's easy to fall into huge debt, but she also had heard something about "building credit" in school. This letter seemed like a too-good-to-be-true offer: for an annual fee of $100, which wouldn't be charged the first year, Lisa could earn points on all of her purchases toward free flights. If she used the card to buy flights, then the points would rack up really quickly, with points being multiplied by 5. By Lisa's calculation, if she used the card for most purchases and to buy her annual flights home, she'd be able to take at least one and possibly two extra flights for Thanksgiving or Spring Break during her college career, for free. The big catch was that, because she is under 21 and would not have a steady income stream, so she needed her parents to co-sign the card. She knew her parents were secretly not thrilled that she would be 3,000 miles away, so she rushed to show them the deal.
Lisa's parents were a bit more hesitant; they were by no means financial experts, but all the numbers Lisa showed them struck them as high (the APR was 21.6%, the late fee was $25, and the default APR was 33%), and the promise of free airline flights just seemed too good to be true. They encouraged Lisa to get a simple checking account with a debit card to avoid debt, the temptations of overspending high interest, but Lisa promised them that she could be disciplined with the car, would not spend Loot, Inc. Case Study: Lisa's Rewards money she didn't have, and would pay the bill on time every month. Lisa's parents visited their local bank, where they had been loyal customers for over 20 years, and asked what the bank could offer if Lisa really wanted a credit card. The bank offered a starter card that would be co-signed between them and Lisa; they would be respon- sible if Lisa didn't pay, and they would be alerted of any transaction over $100. The card also had a tight limit of $500 to start, which would rise to $1,000 after one year of timely payments. It had no annual fee and an APR of 11.2%. But, of course, it didn't offer points towards airfare. Recommendations You are Lisa's parents. How would you advise Lisa to proceed? What factors would
Recommendations You are Lisa's parents. How would you advise Lisa to proceed? What factors would you consider when deciding between the OrangeJet card and any other options? What other options would you consider? Think about the advanta n d disadvantages of different options and how you would prioritize different ciend for weighing them; you should also consider whether there are other card options that might be better than either of the two presented here. What else would you want to know to make a better recommendation? Terms - Annual fee - Bank - Checking account - Co-sign - Credit Card Accountability, Respon- sibility and Disclosure (CARD) Act of 2009 - Credit limit - Credit report - Credit score - Debit card - Finance charges - Grace period - Identity theft - Interest (APR) - Minimum payment - Six C's of credit - Truth in Lending Act of 1968 - Variable APR

Answers

Based on the findings, Lisa's parents financial background is not good where they can afford to pay only one visit or return journey.

Lets, consider the credit card offers from both the banks:

OrangeJet Airlines:

Benefits of the this company card.

1. Earns rewards on every payment towards airlines.

2. Multiples points by 5 times when purchased flight tickets.

3. Could earn a flight ticket or possibly two, which helps to increase the times of travel to visit her parents.

Disadvantages of this company card.

1. Charges Annual fee after one year @ $100.

2.

APR @ 21.6%

3. Late fee @ $25

4. Default APR @ 33%

Local Bank:

Benefits of Local Bank:

1. No Annual Fees

2. No Late fee

3.

No Default APR

4. Low APR than the OrangeJet Airways.

5. Alerting her parents when transaction exceeds $100.

Disadvantages:

1. Limit of spending of $500, which will be increased to $1000 next year upon timely payments.

2. APR of 11.2%

Based on Benefits and Limits of both the card offers, The local bank offer looks much better than the OrangeJet airways.

The reason being, although the OrangeJet airways provides you reward points for every transaction done, there is a high APR @ 21.6%, which will deduct approximately one-fifth of your earnings every year irrespective of your earnings.

With an annual fee of $100, but can earn a free flight tickets. Moreover to earn those reward points you have spend more than you earn.

When it comes to Local Bank Credit Card, it has neither annual fees nor APR. It limits your transaction to only $500. and alerts her parents on excessive transactions.

.

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