APR calculation

[Algee]

Can any one tell me how you can work out the average APR for the first year of a credit card if the first six months are 0%, after which the interest reverts to a normal rate of say 15%, for example?

Alan

[Turboman]

Re: APR calculation

Can any one tell me how you can work out the average APR for the first year of a credit card if the first six months are 0%, after which the interest reverts to a normal rate of say 15%, for example?

Alan

Bill is good at that Algee---but for the first year you also need the "Admin Charges" -if any

Remember the APR is the % for the first year only---and is only a snapshot in time designed for comparing the various lenders offerings

The projected TAP (Total amount payable over the loan) might be more of an interest to you

[Algee]

Re: APR calculation

Thanks, Turboman, but it is a credit card, not a loan.

I realise that the APR is only a snapshot for comparison, but I have a card that gives a concessionary period of 6% for credit transfers followed by an approx 16% for rest of term. Yet they give an average APR for that for the first year of 5.8%. I would like to know how you can have an average lower that the lowest rate you are paying?

Alan

[Turboman]

Re: APR calculation

Right

I think the apr for the first year would be lower at 5.8% over first year as you have 6% for 6 months and 0% for 6 months PLUS a fee for transferring-say 2.5% of balance-----cos you aint paying interest for the first 6 months---then the normal rate clicks in at year 2 etc

Thanks, Turboman, but it is a credit card, not a loan.

I realise that the APR is only a snapshot for comparison, but I have a card that gives a concessionary period of 6% for credit transfers followed by an approx 16% for rest of term. Yet they give an average APR for that for the first year of 5.8%. I would like to know how you can have an average lower that the lowest rate you are paying?

Alan

[Guest]

Re: APR calculation

Can any one tell me how you can work out the average APR for the first year of a credit card if the first six months are 0%, after which the interest reverts to a normal rate of say 15%, for example?

Alan

HI Alan

You cant work out an average APR, as the name suggests (Anual percentage ratio) it would have to represent the Actual annual rate.

So the calculation would be, period one + period 2 etc up to period 12. the first six periods having a value of 0.
This would calculate the actual APR.

There is no simple method as exists if all monthy payments are charged at the same rate unfortunatiely.

I do have a spread sheet that sould do the job if you are really intersted.

The APR required to be stated in an agreement with an interst free period should be the normal monthly rate(15%) accoriding to the advertising regulations and the OFTguidlines.

Peter

[Algee]

Re: APR calculation

Turboman

It was 6% for six months followed by 16%, not 0% followed by 6%, as you seem to think.

Peter

So putting an average which is less than the normal rate, would be a no-no with the OFT? If you have a copy of that spreadsheet, I would be most grateful.

Alan

[Bill-K]

Re: APR calculation

I bow to Peter's knowledge on this Algee. I believe some definitions have changed in recent years, but essentially the APR was a representation of what it cost to borrow £100 over the first year. If the cost of this was, say £2 cash advance fee, plus a total of £6.00 interest, then the cost would be £8, and the APR would be expressed as 8%.

Hopefully, Peter's spreadsheet will do a similar thing...

[Guest]

Re: APR calculation

HI
This is a thread by an aquantence of mine the spready is on post 5 i think.

You will have to substitute the assumptions as bill said, i think it is £1500 in equal payments over twelve months,(it should be mentioned on your agreement) inflation eh Bill:tinysmile_hmm_t2:.
Peter

[Bill-K]

Re: APR calculation

I make it 10.66%, using the raw formula, and splitting the year exactly in half. To this must be added any other charges which the £100 debit would have incurred, so if there was a £2 cash advance fee, then the APR would become 12.66%, etc.

A near approximation can be done using the attached spreadsheet, which yields £10.65 interest, representing an APR of 10.65%

[Turboman]

Re: APR calculation

Sorry-16% not 6% -need specsavers

You got the fee they charged for the balance transfer?--Does that come into the equation Bill & Peter?

Turboman

It was 6% for six months followed by 16%, not 0% followed by 6%, as you seem to think.

Peter

So putting an average which is less than the normal rate, would be a no-no with the OFT? If you have a copy of that spreadsheet, I would be most grateful.

Alan

[Bill-K]

Re: APR calculation

You got the fee they charged for the balance transfer?--Does that come into the equation Bill & Peter?

Similarly to the example of a cash advance above, we add the balance transfer fee. Remember, this has to be the fee for transferring a balance of £100 - any other amount will not give the correct result. So, if a £100 balance transfer attracts a fee of £2, then the APR is 12.66% for balance transfers.

Subject to Peter's comments, though, as I am not a qualified accountant.

[Guest]

Re: APR calculation

Similarly to the example of a cash advance above, we add the balance transfer fee. Remember, this has to be the fee for transferring a balance of £100 - any other amount will not give the correct result. So, if a £100 balance transfer attracts a fee of £2, then the APR is 12.66% for balance transfers.

Subject to Peter's comments, though, as I am not a qualified accountant.

Hi

No pretty sure that one off fees dont enter into the charge for credit on a credit card

Peter

[Bill-K]

Re: APR calculation

I know that years ago, cash advance fees were included, as there was a higher APR for cash advances, but there has been a lot of water under the bridge since then, so you're probably right, Peter.

Do you get the same basic APR that I get ?

[Guest]

Re: APR calculation

I know that years ago, cash advance fees were included, as there was a higher APR for cash advances, but there has been a lot of water under the bridge since then, so you're probably right, Peter.

Do you get the same basic APR that I get ?

Hi Bill
Yes the assumptioms were atletered in the 2004/1482 regulations and i think they have been altered again by the eu directive to some odd amouint that equates to 1000 euros. The amount used on the ops particular calculation should be on his agreement i have not looked at this yet but i will when i get a minute.
Peter

[Algee]

Re: APR calculation

Thanks everyone. That was a great help.

Alan