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Gary
August 7th 03, 12:59 AM
Hi

How do you work out loan repayments with the quoted APR's?
e.g. £2000 over 2 years @ 7.3% APR

How would you work out the repayments?
I know it not as simple as adding 7.3% to the loan amount of £2000 then
dividing by 24.

Always wondered, but never asked.
--
Gary
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john boyle
August 7th 03, 01:33 AM
In message >, Gary
> writes
>Hi
>
>How do you work out loan repayments with the quoted APR's?
>e.g. £2000 over 2 years @ 7.3% APR

Within a very short time indeed a chap with the initials 'RR' will reply
with a very accurate, but long, explanation of the mathematical APR
calculation.

Unfortunately, his model starts form the other end, i.e. with a known
pattern of repayments. You are asking what the payments will be from a
stated APR. RR will make some assumptions for his calculation, which is
fair enough.

My Answer is that you cant back calculate the repayments from a given
APR without knowing the lenders adopted interest calculation method and
any other charges that may be applied. (There may be a £100 arrangement
fee paid on day 7, for example), or it might be ,001% interest per annum
with a £1000 fee. Without this info it cant be done.
--
john boyle

Ronald Raygun
August 7th 03, 10:30 AM
Gary wrote:

> Hi
>
> How do you work out loan repayments with the quoted APR's?
> e.g. £2000 over 2 years @ 7.3% APR

Generally you can't, because as a rule APR is a legal constrcution
derived from the nominal rate which the lender really applies, and
usually quotes too.

> How would you work out the repayments?

Making the usual assumptions, i.e. that there are no extraneous
fees etc, and that in fact there is a fixed monthly rate with
monthly compounding, and that the 7.3% figure is not the result
of too much rounding, you can recalculate the monthly rate by
taking 1 from the 12th root of 1.073, giving 0.5889% per month,
or a nominal 7.067% per year.

Then the repayments are £2000*0.005889/(1-1.005889^-24) = £89.61.

Ronald Raygun
August 7th 03, 10:45 AM
john boyle wrote:

> Within a very short time indeed a chap with the initials 'RR' will reply
> with a very accurate, but long, explanation of the mathematical APR
> calculation.

I thought it was pretty short this time.

> Unfortunately, his model starts form the other end, i.e. with a known
> pattern of repayments. You are asking what the payments will be from a
> stated APR. RR will make some assumptions for his calculation, which is
> fair enough.

Glad you think it's fair.

> My Answer is that you cant back calculate the repayments from a given
> APR without knowing the lenders adopted interest calculation method and
> any other charges that may be applied.

Too true. But you can always assume there are no other charges.

As a matter of interest (groan), do you know of any lenders who
apply interest on a true continuous exponential basis instead of
linearly? Typically a deal with monthly repayments might involve
payment being taken and calculated on the same day relative to the
start or end of a month, possibly deferred to the next working day
if the day falls on a weekend or holiday, and so the actual periods
will be of varying length.

So I guess most will tend to do a calculation on the payment date
such that they will charge interest on the previous balance at
(number of days since last payment) / (days in year) times
(nominal annual interest rate), and will add this amount to the
balance while deducting the actual monthly payment, to arrive
at the new balance, and hope it all works out in the end, with an
adjustment if necessary to the very last payment.

Does anyone instead charge interest on the basis ((APR+1) to the
power ((number of days since last payment) / (days in year)))-1?

john boyle
August 10th 03, 12:09 AM
In message >,
Stephen Burke > writes
> are lenders allowed to
>charge an extra day's interest?
>


yes
--
john boyle