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]

i havnt read the article yet but yes it sounds like the bbc are talking shite.

again

[ewx.livejournal.com]

Surely 194% interest [again using the dodgy 60 weeks=1 year approximation], since the £2,940 presumably includes repayment of the initial £1,000. I'm not clear where they get the 917% figure from either.

[bateleur.livejournal.com]

The quoted APR isn't even in vaguely the right ballpark.

The correct answer would be (I think) 1203% APR.

Each week the interest is 4.9%, so the annual interest rate is 100*1.049^52. It only comes out as low as 294% if you're paying each week. (Which I appreciate they say is compulsory, but that doesn't affect the rate charged.)

However, I have no idea how they got 917%.

[mister-jack.livejournal.com]

The thing to remember is that the capital decreases each month, so the APR% can be much higher than the total % paid.

[undyingking.livejournal.com]

They're exactly right, according to this calculator.

Either that; or they also used that calculator, and it and they are both exactly wrong.

I think the trouble is that APR can be a bit of a misleading figure.

[feanelwa.livejournal.com]

I'm so glad it's not just me who looked at that and said "that's not 917%".

I think they must be wrong. I can't see any way you'd get 917% out of those numbers.

[battyblingtrash.livejournal.com]

maths really makes me panic :/

[ulfilias.livejournal.com]

60 weeks....Odd time for a loan, 60 months would make more sense as it would be 5 years, which is quite common !

[drdoug.livejournal.com]

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

You'll be aware, of course, that those two statements are orthogonal, or weakly correlated at best :-)

The people I know with the hugest disparity between expected and actual arithmetical prowess are mathematicians. In both directions - people who struggle to work out change for a fiver, and people who can factorise your telephone number as soon as you tell it to them.

[john-the-hat.livejournal.com]

Part of my job, occasionally, is certifying the bank's own APR calculations.

Normally its pretty easy (mortgages, general loans, etc) but especially when you get into things like payday loans you can get some very silly and meaningless figures.

[mrlloyd.livejournal.com]

I'm sure I have a text book somewhere which covers this. However it's in the loft, and I'm not.