The term annual percentage of annual costs ( APR ), sometimes corresponds to nominal APR and sometimes becomes effective APR ( or EAPR ), is the interest rate for one full year (annual), not just monthly fees/tariffs, as applied to loans, mortgage loans, credit cards, etc. financial costs are expressed as annual rates. These terms have formal legal definitions in some countries or legal jurisdictions, but in general:
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- The nominal APR is a simple interest rate (for one year).
- The effective APR is the cost of the compound interest rate (calculated throughout the year).
In some areas, <%> annual percentage rate (APR) is a simplified partner for the effective interest rate that borrowers will repay on loans. In many countries and jurisdictions, lenders (such as banks) are required to disclose borrowing "costs" in some standard way as a form of consumer protection. APR (effective) has been intended to make it easier to compare lenders and loan options.
Video Annual percentage rate
Multiple definitions of effective APR
The nominal APR is calculated as: rate, for payment period, multiplied by the number of payment periods in a year. However, the precise legal definition of "effective APR", or EAR, can vary greatly in every jurisdiction, depending on the type of fee included, such as participation fees, loan origination fees, monthly service fees, or late fees. Effective APR has been called "true-mathematical" interest rates for each year.
The calculations for effective APRs, as compound interest rates, may also vary depending on whether upfront costs, such as origination or participation fees, are added to the whole amount, or treated as short-term loans in the first payment. When the initial fee is paid as the first payment, the balance due may increase in interest, because it is delayed by additional payment period.
There are at least three ways to calculate the effective annual percentage rate:
- by increasing the interest rate every year, without considering the cost;
- origination fees are added to the due balance, and the total amount is treated as a basis for calculating compound interest;
- origination fees are amortized as short-term loans. This loan is due in the first payment, and the unpaid balance is amortized as a second term loan. The first extra payment (s) is dedicated to primarily pay the origination fees and interest charges on that part.
For example, consider a $ 100 loan to be repaid after one month, plus 5%, plus a $ 10 fee. If no fee is considered, this loan has an effective APR of about 80% (1.05 12 = 1 , 7959, which is approximately 80% increase). If the $ 10 cost is considered, the monthly interest increases by 10% ($ 10/$ 100), and the APR is effective to around 435% (1.15 12 = 5.3503, which equals 435% ). Therefore there are at least two possible "effective APRs": 80% and 435%. Laws vary, whether fees should be included in APR calculations.
United States
In the US, APR calculations and disclosures are governed by the Truth in Lending Act (implemented by the Consumer Financial Protection Bureau (CFPB) in Rule Z of the Act). In general, APRs in the United States are expressed as periodic rates (eg, monthly), times the number of combined periods in a year (also known as nominal interest rates); because APR must include certain non-interest fees and fees, this requires more detailed calculations. APR should be disclosed to the borrower within 3 days after applying for a mortgage. This information is usually sent to the borrower and the APR is found in truth in the loan disclosure statement, which also includes an amortization schedule.
Truth in Lending Act of 1968 (TILA) resulted in honest reporting of effective APR for more than a decade. Then in the 1980s, automakers (and some other durable goods providers) began to take advantage of loopholes in the law and its implementation regulations. Since the Act does not precisely define "Financial Costs" or "Total Selling Prices" (terms used in TILA disclosures), automakers find that they can reduce Financial Costs and raise the price of cars as much as they want, provided the Total Price of Sales is not changed. APR is calculated by reducing, or eliminating, financial costs to be "below the market rate" and "Zero percent APR 'loans that are typically advertised for the next 30 years." Zero percent APR or $ 1,000 rebate "is the most common form of this" Rebate "is the hidden financial cost, reclassified to the price of the car.If the consumer does not receive a" zero percent loan, "then he does not add an additional $ 1,000 interest on the loan, and this $ 1,000 is represented as a "rebate." In reality, there are no rebates and no "zero percent loans."
Automakers have been assisted in ongoing consumer fraud by regulators who manage TILA. The current form of disclosure under TILA appears to be specifically designed to support automakers' scam schemes (including the classification of "rebates" as "advances," an oddity that does not seem to be related to the underlying scheme to shrink the APR). The TILA Administration has recently been transferred to the new Consumer Financial Protection Bureau which can provide reasons for reform expectations in its laws and administrations that will restore the intended consumer protection when TILA is enforced.
As of July 30, 2009, the provisions of the 2008 Mortgage Disclosure Act (MDIA) Act came into force. The specific clause of this action refers directly to the APR disclosure on the mortgage. This states, if the last annual percentage rate of APR dies more than 0.125% of the initial GFE disclosure, then the lender must disclose and wait another three business days before closing the transaction.
Calculations for "close-ended credit" (such as a home mortgage or auto loan) can be found here. For a fixed rate mortgage, APR is thus equal to the internal rate of return (or yield) under the assumption of default payment of zero and zero default. For adjustable mortgage interest rates, APR will also rely on specific assumptions about the prospective trajectory of the index rate.
Calculations for "open credit" (such as credit cards, home equity loans or other credit lines) can be found here.
- Financial Supervisory Office Software APR Currency Calculation
European Union
In the EU, the focus of APR standardization relies heavily on transparency and consumer rights: a set of understandable information to give to consumers in good time before the contract is concluded as well as part of the credit agreement [...] every lender must use the form this when marketing consumer credit in any Member State so marketing different numbers is not allowed.
The EU regulations are reinforced by the directives of 2008/48/EC and 2011/90/EU, fully applicable in all member states since 2013. However, in the UK EU directives have been interpreted as APR Representatives.
Metode penghitungan APR tunggal diperkenalkan dalam direktif 98/7/EC dan harus dipublikasikan untuk sebagian besar pinjaman. Persuasan dasar untuk perhitungan APR di UE adalah:
-
- di mana:
- M adalah jumlah arus kas yang dibayar oleh pemberi pinjaman
- l adalah nomor urut untuk arus kas yang dibayarkan oleh pemberi pinjaman (menarik ke bawah)
- S l adalah arus kas (penarikan) dalam periode l
- N adalah jumlah total arus kas yang dibayarkan oleh peminjam
- k adalah nomor urut arus kas yang dibayarkan oleh peminjam (pembayaran kembali)
- A k adalah arus kas (pembayaran) dari peri k , dan
- t l dan t k adalah interval, dinyatakan dalam tahun dan fraksi setahun antara tanggal arus kas pertama dan tanggal arus kas l atau k . ( t 1 = 0.)
In this equation the left side is the current value of the lucky draw made by the lender and the right side is the present value of the payments made by the borrower. In both cases, the present value is defined as the APR as the interest rate. So the present value of the withdrawal is equal to the present value of the payment, given the APR as the interest rate.
Note that both the number and the period between transactions are always the same. For the purposes of this calculation, a year is estimated to have 365 days (366 days for leap year), 52 weeks or 12 months of the same. By default: "The same month is estimated to have 30.41666 days (eg 365/12) regardless of whether or not it is a leap year." The result must be declared at least one decimal. This algorithm for APR is required for some but not all forms of consumer debt in the EU. For example, this EU directive is limited to EUR50,000 and below treaties and excludes all mortgages.
In the Netherlands, the above formula is also used for mortgages. In many cases, the mortgage is not always fully repaid at the end of the N period, but for example when the borrower sells his house or dies. In addition, there is usually only one payment from the creditor to the borrower: at the beginning of the loan. In this case the formula becomes:
-
- where:
- S is the loan amount or the principal amount.
- A is a one-time pre-paid fee
- R remaining debt, the amount remaining as interest only after the last cash flows.
If the length of the same period (monthly payment) then the summary can be simplified using the formula for geometric series. Either way, APR can be solved iteratively only from the above formula, apart from trivial cases like N = 1 .
Additional considerations
- Confusion is possible if the word "effective" is used separately as meaning "influential" or has "long-term effects", the term effective APR will vary, as it is not a legal definition strict in some countries. APR is used to find compound interest rates and simple.
- APR is also an abbreviation of "Annual Principal Rate" which is sometimes used in car sales in some countries where interest is calculated on the basis of "Original Principal" not "Temporary Principal", so as Current Principal Due to the reduced interest no maturity.
Maps Annual percentage rate
Tariff Format
The effective annual interest rate of 10% can also be expressed in several ways:
- 0.7974% effective monthly interest rate, because 1.007974 12 = 1,1
- 9,569% annual interest rate increase every month, because 12ÃÆ' â € "0,7974 = 9,569
- 9.091% annual rate in advance, because (1.1-1) ÃÆ'Â · 1.1 = 0.09091
These numbers are all equal, but for consumers who are not trained in financial math, this can be confusing. APR helps to standardize how the interest rate is compared, so a 10% loan is not made to look cheaper by calling it a loan at "9.1% every year in advance".
APR does not always deliver the total amount of interest paid for a year: if a person pays part of interest before the end of the year, the total amount of interest paid is less.
In the case of a no-cost loan, the amortization schedule will be done by taking the remaining principal at the end of each month, multiplying by monthly rate and then subtracting the monthly payments.
Ini dapat dinyatakan secara matematis oleh
- di mana:
- p adalah pembayaran yang dilakukan setiap periode
- P 0 adalah pokok awal
- r adalah tingkat persentase yang digunakan setiap pembayaran
- n adalah jumlah pembayaran
It also explains why a 15 year mortgage and a 30 year old mortgage with the same APR will have different monthly payments and the total amount of interest paid is different. There are more periods to spread the principal, which makes the payment smaller, but there are many periods to collect interest at the same rate, which makes the total amount of interest paid much larger. For example, $ 100,000 mortgaged (no cost, as they add to the calculation in different ways) for 15 years total cost $ 193,429.80 (interest is 93.430% of principal) but over 30 years, total cost $ 315,925.20 ( interest is 215.925% of the principal).
In addition, APR takes into account costs. Suppose for example that $ 100,000 was borrowed with a $ 1000 prepaid one-time fee. If, in the second case, the same monthly payment is made from $ 946.01 to 9.569% monthly compound, then it takes 240 months to repay the loan. If a one-time cost of $ 1000 is taken into account, the effective annual interest rate paid is equal to 10.31%.
The concept of APR can also be applied to savings accounts: imagine a savings account at a cost of 1% on each withdrawal and another 9,569% interest plus every month. Suppose that the complete amount including interest is withdrawn after exactly one year. Then, taking into account this 1% cost, saving effectively generated 8.9% interest that year.
Money factor
APR can also be represented by the money factor (also known as lease factor, rental rate, or factor). The money factor is usually given as a decimal, for example.0030. To find the equivalent APR, the money factor multiplied by 2400. The money factor of 0.0030 is equivalent to the monthly interest rate of 0.6% and the APR of 7.2%.
Untuk pengaturan sewa dengan biaya modal awal C , nilai sisa pada akhir sewa F dan tingkat bunga bulanan r , bunga bulanan dimulai pada Cr dan menurun hampir secara linier selama jangka waktu sewa hingga nilai akhir Fr . Jumlah total bunga yang dibayarkan selama masa sewa N bulan adalah karena itu
Give jumlah bunga rata-rata per bulan adalah
This amount is called "monthly financial fees". The r /2 factor is called the "money factor"
Failure in the United States
Despite repeated attempts by regulators to set standards that can be used and consistent, APR does not represent the total cost of borrowing in some jurisdictions or does not actually create comparable standards of cross-jurisdiction. However, this is considered a reasonable starting point for an ad hoc lender comparison.
Nominal APR does not reflect actual costs
Credit card holders should be aware that most US credit cards are quoted in APR par monthly, which is not the same as the effective annual rate (EAR). Regardless of the word "yearly" in the APR, it is not necessarily a direct reference to the interest rate paid on a stable balance for a year. The more direct reference to the one-year interest rate is EAR. The common conversion factor for APR to EAR is , where n represents the number of combined periods of APR per EAR period. For example, for a general credit card cited at 12.99% APR combined monthly, one year EAR is , or 13.7975%. For 12.99% APR compounded daily, EAR is paid on a stable balance for one year to 13.87% (see credit card interest for 0,000049 in addition to APR 12.99%). Note that the monthly high APR 29.99% US yields an effective annual rate of 34.48%.
While the distinction between APR and EAR may seem trivial, since the exponential nature that attracts this small difference can have a major influence over the lifetime of the loan. For example, consider a 30-year loan of $ 200,000 with an APR of 10.00%, that is, an APR of 10.0049% or an EAR equivalent of 10.4767%. Monthly payment, using APR, will be $ 1755.87. However, by using EAR 10.00%, the monthly payment is $ 1691.78. The difference between EAR and APR amounted to a difference of $ 64.09 per month. During the 30-year loan period, this amount becomes $ 23,070.86, which is more than 11% of the original loan amount.
Certain costs are not considered
Some cost classes are not deliberately included in APR calculations. Because these costs are not included, some consumer advocates claim that the APR does not represent the total loan cost . Excluded costs may include:
- a one-time regular fee paid to someone other than the lender (such as the cost of a real estate attorney).
- penalties such as late fees or service recovery fees regardless of the magnitude of the penalty or are likely to be imposed.
Lenders argue that the cost of a real estate attorney, for example, is a pass-through fee, not a borrowing fee. Actually, they argue that attorneys' fees are separate transactions and not part of the loan. Consumer advocates argue that this will be true if customers are free to choose which lawyers to use. If the lender insists, however, by using a particular attorney, the cost should be viewed as a component of the total cost of doing business with the lender. This area is made more complicated by the practice of contingency fees - for example, when a lender receives money from lawyers and other agents to become used by the lender. Therefore, US regulators require all lenders to create an affiliated business disclosure form indicating the amount paid between the lender and the appraiser company, the attorney, etc.
Lenders argue that including late fees and other conditional fees will require them to make assumptions about consumer behavior - assumptions that will distort the calculations and create more confusion than clarity.
Not worth the standard
Even outside of the cost components not included above, the regulator can not fully determine the one-time cost that must be included and which is not included in the calculation. This makes the lender with some wisdom to determine the cost to be included (or not) in the calculations.
Consumers can, of course, use the nominal interest rate and any fees on the loan (or savings account) and calculate the APR itself, for example using one of the calculators on the internet.
In the example of a mortgage loan, the following types of fees are:
The discretion illustrated in the "sometimes included" columns even in the highly regulated home mortgage environment of the US makes it difficult to simply compare the APRs of the two creditors. Note: US regulators generally require lenders to use the same assumptions and definitions in APR calculations for each of their products even though they can not force consistency across lenders.
With respect to items that can be sold with vendor financing, for example, car rental, notional costs of goods can be effectively hidden and APR then given is meaningless. An example is a case where a car is leased to a customer on a "manufacturer's suggested retail price" with a low APR: the vendor may receive a lower rental rate as a trade-off against higher selling prices. Should the customer be self-financed, the discounted sale price may have been received by the vendor; in other words, customers have received cheap financing in exchange for paying higher purchase prices, and the quoted APR undermines the true cost of financing. In this case, the only meaningful way to establish a "right" APR would involve financing arrangements through other sources, determining the lowest acceptable cash price and comparing financing terms (which may not be feasible under all circumstances). For a lease the lessee has a purchase option at the end of the lease term, the APR fee is further compounded by this option. As a result, the rental includes a return option to the producer (or alternatively, call option for the consumer), and the value (or cost) of this option for the consumer is not transparent.
Dependence on loan period
APR depends on the time period in which the loan is calculated. That is, APR for one loan with 30-year loan period can not be compared with APR for other loan with 20-year loan term. APR can be used to indicate the relative impact of various payment schedules (such as balloon payments or biweekly payments instead of direct monthly payments), but most standard APR calculators have difficulties with these calculations.
In addition, most APR calculators assume that someone will keep certain loans until they are fully paid off so that the fixed closing cost remains amortized over the full term of the loan. If the consumer pays the initial loan, the effective interest rate achieved will be much higher than the initial APR. This is particularly problematic for mortgage loans where the typical loan duration is 15 or 30 years but where many borrowers move or refinance before the loan term is exhausted.
Theoretically, these factors should not affect the ability of individual consumers to compare APRs of the same product (loans of the same duration) across vendors. April may not, however, be very helpful when trying to compare different products.
Interest-only loan only
Since the principal balance is not paid during the interest period alone, assuming no deposit fee, the APR will be equal to the interest rate.
Three lenders with identical information may still calculate different APRs. Calculations can be very complicated and poorly understood by most financial professionals. Most users rely on software packages to calculate APR and therefore rely on assumptions in certain software packages. While the differences between software packages will not produce large variations, there are several acceptable APR calculation methods, each of which returns slightly different results.
See also
- Compound interest
References
External links
- Easy to use APR calculator
- FDIC Finance Rules and APR Rules
- http://www.investopedia.com/terms/a/apr.asp
- White Book: More Than Mathematics, Art Loss Loss Calculations
- Introduction to APR percentage and understanding with BBC raw money
- Mortgage Disclosure Act or MDIA
Source of the article : Wikipedia
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