I'm always paying, never make it, but you can't look back

[venta]

So, sums. I can, broadly speaking, do sums. I have a degree in maths.

However, interest rate calculations have always baffled me. Sure, if you ask me to calculate 3 months compound interest at a monthly rate of x% I know what to do. However, when it comes to real examples of mortgages and credit cards, I can't work out what the sum I need to do is. I'm still slightly baffled about the interest charged me when I was a day late paying my credit card off in full in March.

Today, the BBC carried a story about a loanshark. It includes the following statement about someone who borrowed £1000:

"...to pay £49 a week over 60 weeks, making the total amount he had to
repay £2,940 at 917% APR."

Now, if we approximate 60 weeks to a year, then surely that's an annual interest rate of no more than 294%. The quoted APR isn't even in vaguely the right ballpark.

So... have I completely failed to understand APR ? (Wikipedia's page on the subject didn't really help with the definition.) Or is the BBC publishing unmitigated wank in the name of investigative journalism ?

Edit It turns out I'd failed to understand APR, and the BBC is cleared in this instance.

Comments

[hughe.livejournal.com]

yup that is right. i stand corrected. the apr is more symbolic of the value of the loan than just a percentage of the interest to the innitial loan amount.

Though i'm still trying to work out how they are calculating it...

  x = 1.0001
  z = 0
  do {
    fx = ( 49 * (x61 - x) / (x - 1) ) - 1000;
    dx = 49 * (60x61 - 61x60 + 1) / (x - 1)2
    z = fx / dx
    x = x - z
  }
  while (ABS(z) > 0.000000001)

  rate = 100 * ( (1 / x)52 - 1)

ok yeh i kind of see what they are getting at now. so it is usefull for working out which is the best rate of equivilant loans, but useless at a metric for actually working out cashflow or anything.

as far as cashflow goes the amount payed back is about 3 times that leant, over 14 months (200% or so intrest) but like a mortgage, at the start your repayments are mainly paying interest, and as time goes on more of your repayment goes on paying back the loan instead of interest. so i supose its a way to takee this into account too. ?

[venta.livejournal.com]

Phew. I'm glad someone else worked dx out. It appears I can't differentiate any more.