APR do you really understand it?
Discussion
FFS... you would have thought we would all have had better things to do on a Sunday...this is my final response...
See the 3rd post (before you even got involved) no mention of short term loans
I know it was childish, hence the reference to it but it felt good! Oh by the way you haven't attempted to insult me on this thread? 
Nice try at moving the goalposts though...Not shifting the goal posts. The value to one person can be different to another and the example I provided shows this.
To expand on this the APR is roughly 3.2% if paying it back monthly but "only" 1.62% in the lump sum option. With both options the total cost of finance is £500 but taking the "cheaper" option at 1.62% could actually have very dangerous consequences for the person who can't budget to pay back the lump sum at the end (but as said before could pay back the £291.67 per month). Accordingly, can you now see how my claim that APR can be misleading, makes some sense.
No but neither are finance agreements or all the T & Cs on finance contracts/quotes. It's better than quoting 1.62% APR, which the majority of the public will have no real understanding of what this actually means.
This is also what I suggested (albeit that APRs are also misleading) on the first page.
Finally, I have never claimed to be an expert, nor will I but one thing I know for certain is that there would be no way I would be taking advice from Sidicks.
sidick said:
TheHound said:
You are not clarifying that point at all and by the way I have said in this very thread "APR can be very misleading"
Only for loans of less than 12 months, which were never under discussion in the first place. See the 3rd post (before you even got involved) no mention of short term loanssidick said:
TheHound said:
I am obviously very confused about what I said... 
I must also have been very confused when I called you a 
(childish I know but hey ho)
Rather than admit you were wrong, you resort to insults. How dull, I must also have been very confused when I called you a (childish I know but hey ho) sidick said:
TheHound said:
I would express it as a £10k loan with £500 intrest due to be paid in one lump some at the end of the term.
I would agree with him that the second option would be more benficial to me but not necessarily to everyone. For example those that are not so good at budgeting and saving up to be able to pay off £10.5k in a lump at the end but could easily "afford" and manage to pay the £291.67 a month.
The question was about determining which loan was best value NOT which loan might suit those who can't budget very well...I would agree with him that the second option would be more benficial to me but not necessarily to everyone. For example those that are not so good at budgeting and saving up to be able to pay off £10.5k in a lump at the end but could easily "afford" and manage to pay the £291.67 a month.
Nice try at moving the goalposts though...
To expand on this the APR is roughly 3.2% if paying it back monthly but "only" 1.62% in the lump sum option. With both options the total cost of finance is £500 but taking the "cheaper" option at 1.62% could actually have very dangerous consequences for the person who can't budget to pay back the lump sum at the end (but as said before could pay back the £291.67 per month). Accordingly, can you now see how my claim that APR can be misleading, makes some sense.
TwigtheWonderkid said:
TheHound said:
I would express it as a £10k loan with £500 intrest due with both amounts to be paid in one lump sum at the end of the term.
It's not very catchy, is it? sidicks said:
Wacky Racer said:
The best way is compare APR against another lenders APR to determine the best value for you.
Finally, I have never claimed to be an expert, nor will I but one thing I know for certain is that there would be no way I would be taking advice from Sidicks.
TheHound said:
See the 3rd post (before you even got involved) no mention of short term loans
And once again you prove my point (and prove that you don't understand) - APR is only misleading for short term loans (ie less than a year) where compounding the loan over a 12 month period can be misleading.For longer term loans APR is NOT misleading as it shows the true effective rate of interest and takes into account both the timing and amount of payments.
TheHound said:
Oh by the way you haven't attempted to insult me on this thread?
No, I've simply stated that you don't have a clue what you are talking about which is a factual comment based on your continued responses on this thread.TheHound said:
Not shifting the goal posts. The value to one person can be different to another and the example I provided shows this.
A poor definition of value in this context, and irrelevant to the point under discussion - the best value in this context is the one with the lowest APR, as this is the effective rate charged. Introducing a convoluted example doesn't change that.TheHound said:
No but neither are finance agreements or all the T & Cs on finance contracts/quotes. It's better than quoting 1.62% APR, which the majority of the public will have no real understanding of what this actually means.
Again, you miss the point (there is a pattern here..) APRs are directly comparable between loans whereas flat rates are not necessarily comparable.And they are a useful comparator against the interest rate achieved on a bank account / Cash ISA, whereas flat rates are not.
The fact that a worse value loan might suit someone's needs better (e.g. PCP v repayment loan) doesn't change the value for money being offered (which is the whole point of APRs!).
TheHound said:
Finally, I have never claimed to be an expert, nor will I but one thing I know for certain is that there would be no way I would be taking advice from Sidicks.
You won't ever be in a position for me to offer you financial advice and it is unlikely you could afford it anyway!Edited by sidicks on Sunday 25th January 16:52
gaz1234 said:
No one knows?
Wow
eh?Wow
"The APR measures the true cost of the loan (i.e. if you borrowed money and simply held it in a bank, it shows the interest rate that you'd need to earn on that money (after tax) to be able to repay the loan.)"
Edited by sidicks on Sunday 25th January 17:46
I haven't read any of the links but I assume criticism of APR really boils down to the fact that a huge proportion of the public simply don't get percentages.
I work in financial services for private clients and am still struck by how many seemingly intelligent and often very well off individuals struggle to derive meaning from %s.
I suspect changes to any regulations or legislation will force things to be expressed in cash terms using worked examples.
Me: "hi Clive just wanted to let you know we did well on the 50k we invested in that structured product in 2013, we got kicked out with a 40% return!"
Clive: "oh ok"
Me: "That's £20,000 Clive"
Clive: "WOO HOO!!! Yes!!! Great stuff! Time for holiday!!!
I work in financial services for private clients and am still struck by how many seemingly intelligent and often very well off individuals struggle to derive meaning from %s.
I suspect changes to any regulations or legislation will force things to be expressed in cash terms using worked examples.
Me: "hi Clive just wanted to let you know we did well on the 50k we invested in that structured product in 2013, we got kicked out with a 40% return!"
Clive: "oh ok"
Me: "That's £20,000 Clive"
Clive: "WOO HOO!!! Yes!!! Great stuff! Time for holiday!!!
sidicks said:
Ilovejapcrap said:
Only 2 things you need to look at what you borrow and what you pay back
As above, that tells you nothing about whether the loan is good value or not.5400. 5700. 6300
You can't see which ones the best deal from that !
Ilovejapcrap said:
ok so if you borrow 5 k over 2 yrs and look at 3 different loans you know all are for 5k then you look at what you end up paying back
5400. 5700. 6300
You can't see which ones the best deal from that !
I can guess, but I can't be sure without seeing the repayment schedules. But this has been discussed already, so presumably you are trolling?5400. 5700. 6300
You can't see which ones the best deal from that !
Obviously if they are all repaid with even monthly payments then it's obvious which is the better value (but of course the APR would tell you that).
Frequently people are comparing loans with different repayment profiles (e.g. PCP versus repayment) and then APR can be more informative than a comparison of total costs.
Looking at the APR would also allow you to determine whether to take out a loan (and retain money in a bank account earning interest) or simply take the money out of the bank account and use this instead of the loan.
Edited by sidicks on Sunday 25th January 18:53
sidicks said:
eh?
"The APR measures the true cost of the loan (i.e. if you borrowed money and simply held it in a bank, it shows the interest rate that you'd need to earn on that money (after tax) to be able to repay the loan.)"
Thanks."The APR measures the true cost of the loan (i.e. if you borrowed money and simply held it in a bank, it shows the interest rate that you'd need to earn on that money (after tax) to be able to repay the loan.)"
Edited by sidicks on Sunday 25th January 17:46
Never borrowed.
Ilovejapcrap said:
ok so if you borrow 5 k over 2 yrs and look at 3 different loans you know all are for 5k then you look at what you end up paying back
5400. 5700. 6300
You can't see which ones the best deal from that !
Not util you tell me what the payment schedule is. The £5400 might have to be paid in 24 equal monthly instalments, whereas the £5700 might have to be paid in one lump sum at the end of the 2 years.5400. 5700. 6300
You can't see which ones the best deal from that !
But I guess I won't know that......UNTIL I f
kING COMPARE THE fkING A fkING P fkING R ON THE fkING LOANS!!!!FFS!
x 100 TheHound said:
Finally, I have never claimed to be an expert, nor will I but one thing I know for certain is that there would be no way I would be taking advice from Sidicks.
You should listen to sidicks on this - he knows what he is talking about and you've spent several pages demonstrating that you don't.TwigtheWonderkid said:
Ilovejapcrap said:
ok so if you borrow 5 k over 2 yrs and look at 3 different loans you know all are for 5k then you look at what you end up paying back
5400. 5700. 6300
You can't see which ones the best deal from that !
Not util you tell me what the payment schedule is. The £5400 might have to be paid in 24 equal monthly instalments, whereas the £5700 might have to be paid in one lump sum at the end of the 2 years.5400. 5700. 6300
You can't see which ones the best deal from that !
But I guess I won't know that......UNTIL I f
kING COMPARE THE fkING A fkING P fkING R ON THE fkING LOANS!!!!FFS!
x 100 Taking the £5000 loan, over 24 months, with £400 total interest:
1) Equal monthly payments: You're borrowing £5K (plus interest) for 24 months, ~£4792 (+interest) for 23 months, ~£4584 for 22 months...
2) Lump sum at the end: You're borrowing the full £5000 for the full 24months.
3) £5300 paid at month 1, £100 in month 24: You're borrowing £4900 for one month, and £100 for 24 months.
Clearly option 2 gives you more of the bank's money for longer, for the same total cost as the others.
Option 3 still requires you to pay £400 in interest after paying most of the money back after one month.
Would I be right in saying that option 2 would have a lower APR, as more money is borrowed for longer (not yet paid pack) for the same cost?
and option 3 would have a much higher APR?
I hope I've got this right
Gassing Station | Finance | Top of Page | What's New | My Stuff